Law firm-office-perspective-2013-global-jll

Global 2013

Diverging global markets present opportunities and challenges for law firms in 2014

Law Firm Perspective

Positive economic news has increased in recent months across many of the developed economies including the U.S., U.K., part of the Eurozone and Japan, fuelling increased optimism for 2014 and 2015. However, emerging market growth has decelerated, notably in China and Latin America, providing firms with stability in their core business, but greater uncertainty in high-growth areas.

With global growth prospects volatile and continuing to diverge, law firms will encounter diverging market conditions across the globe over the next 12 months. That split in leverage, though, will begin to coalesce in the latter part of 2014 and early 2015 when law firms are projected to encounter tighter real estate markets, resulting in heightened landlord confidence and decreased leverage in lease negotiations.

Law Firm Perspective • Global • 2013 3Jones Lang LaSalle

Nearly 70.0 percent of law firm cities we report on project rents to grow in 2014 and even more slide into that majority as 2015 approaches. However, 2014 market conditions appear more favourable when looking at the law firm hubs of New York, Washington, Los Angeles, Paris, Sydney, Hong Kong, London and Chicago with just the latter three projected to shift into landlord-friendly territory next year....

Jones Lang LaSalle Law Firm Group

In the slowly-recovering economic environment we encounter, decision makers tasked with management responsibility for global, national or regional law firms increasingly find themselves in the real estate business as a matter of sound firm management. The amount of time required to deal with portfolios in multiple offices in different cities and / or countries has increased and has become ever more complex with critical events arising on a regular basis. These events are nearly always contextual; accordingly, they require a deep understanding of local market conditions for proper evaluation and action.

With over 1,000 offices in 70 countries worldwide, the Jones Lang LaSalle Law Firm Group has the scope and platform to proactively anticipate those issues and events and advise you on how to navigate the path forward regardless of the market environment or local geography your firm is embedded in.

The Jones Lang LaSalle Law Firm Group concentrates on developing occupancy strategies, executing transactions and providing related

occupancy services to our law firm clients, locally, nationally and globally. The team deeply values the importance of providing timely, accurate and relevant market information and research to our law firm clients that enable them to efficiently manage their real estate in such a way as to generate maximum productivity, while mitigating cost.

Accordingly, we are proud to present the seventh annual issue of our global market perspective. This annual perspective provides information on 30+ major markets across the United States, Canada, Europe, the Middle East, Asia and Australia. The report details market and real estate trends for law firms around the globe, with the goal of assisting you and your firm in navigating the increasingly-changing global marketplace.

We trust you will find this information useful and solicit your feedback if there are areas you would like to see expanded in the future.

Law Firm Perspective • Global • 2013 3Jones Lang LaSalle

Nearly 70.0 percent of law firmcities we report on project rentsto grow in 2014 and even more slide into that majority as 2015 approaches. However, 2014 market conditions appear morefavourable when looking at the law firm hubs of New York,Washington, Los Angeles, Paris, Sydney, Hong Kong, London andChicago with just the latter threeprojected to shift into landlord-friendly territory next year....

Jones Lang LaSalle Law Firm Group

In the slowly-recovering economic environment we encounter, decision makers tasked with management responsibility for global, national or regional law firms increasingly find themselves in the real estate business as a matter of sound firm management. The amount of time required to deal with portfolios in multiple offices in different cities and / or countries has increased and has become ever more complex with critical events arising on a regular basis. These events are nearly always contextual; accordingly, they require a deep understanding of local market conditions for proper evaluation and action.

With over 1,000 offices in 70 countries worldwide, the Jones Lang LaSalle Law Firm Group has the scope and platform to proactively anticipate those issues and events and advise you on how to navigate the path forward regardless of the market environment or local geography your firm is embedded in.

The Jones Lang LaSalle Law Firm Group concentrates on developing occupancy strategies, executing transactions and providing related

occupancy services to our law firm clients, locally, nationally and globally. The team deeply values the importance of providing timely, accurate and relevant market information and research to our law firm clients that enable them to efficiently manage their real estate in such a way as to generate maximum productivity, while mitigating cost.

Accordingly, we are proud to present the seventh annual issue of our global market perspective. This annual perspective provides information on 30+ major markets across the United States, Canada, Europe, the Middle East, Asia and Australia. The report details market and real estate trends for law firms around the globe, with the goal of assisting you and your firm in navigating the increasingly-changing global marketplace.

We trust you will find this information useful and solicit your feedback if there are areas you would like to see expanded in the future.

Law Firm Perspective • Global • 2013 54 Law Firm Perspective • Global • 2013 Jones Lang LaSalle Jones Lang LaSalle

In this report

Jones Lang LaSalle Law Firm Group 3

In this report 4

Law Firm Global Perspective 5

Global law firm trends 7

Law firm market map 8

Global office property clock 9

Americas 10

Atlanta 11

Boston 12

Chicago 13

Dallas 14

Houston 15

Los Angeles 16

Miami 17

New York 18

Philadelphia 19

San Francisco 20

Washington, DC 21

Calgary 22

Montréal 23

Toronto 24

Vancouver 25

Asia Pacific 26

Beijing 27

Hong Kong 28

Melbourne 29

Shanghai 30

Singapore 31

Sydney 32

Tokyo 33

EMEA 34

Amsterdam 35

Brussels 36

Dubai & Abu Dhabi 37

Germany 38

London City 40

Madrid 41

Milan 42

Moscow 43

Paris 44

Warsaw 45

Contacts 46

Law Firm Global Perspective

2013 has been another year of change in the broader economic operating environment in which international law firms operate. In recent months, positive economic news has increased across major law firm markets including the U.S., U.K. and even the Eurozone, fuelling increased optimism for 2014 and 2015 growth prospects in these markets. However, as the U.S., U.K. and Japan witness more positive economic developments, expectations for growth in emerging markets have been downgraded this year, most notably in China and Latin America. With global growth prospects volatile and continuing to diverge, law firms will continue to be challenged to adapt both business and real estate strategies to meet the requirements of such a rapidly changing global environment.

Law firms continue to face a low growth environment While more positive economic signs have emerged in some law firm markets, the outlook for most law firms has remained more muted driven by fairly flat conditions across most practice areas, which, when combined with fee compression, creates a slow-growth environment. Although some markets (such as London and key German markets in EMEA, Northern California, Texas and Calgary in North America and South Korea in Asia) have seen international law firms growing and headcounts increasing, many law firms continue to rightsize their operations.

For U.S. firms the revenue levels of the AmLaw 100 grew by just 2.8 percent in 2012 after growth rates of 4.7 percent and 5.9 percent in 2010 and 2011, respectively. The recent revenue gains appear even more moderate when comparing them to the 11.0 percent annual growth in revenues from 2001 to 2007 for AmLaw 100 firms. As revenue growth slowed, so did profits per partner with just 66 of the AmLaw 100 firms demonstrating increased profitability. Globally-focused firms with diverse practice groups have fared best and have been able to reinvest into the business, attracting specialty practice groups and boutique shops that further enhance the firm’s offerings and geographic scope.

As challenges for law firms persist across the business environment, they have also arisen in many real estate markets of importance for law firms. After nearly seven years of enhanced leverage for tenants in the U.S., firms encounter a more challenging market ahead in 2014 and 2015. A flight to quality has diminished the amount of Trophy and Class A options, spaces that most international and domestic law firms usually flock to. In that segment of the market, blocks of spaces, of all sizes, have shrunk from 12 months ago. This decrease in available space has pushed rents up across the board nationally by nearly 3.0 percent year-over-year in the U.S. Fortunately for firms, the greatest opportunity for extended leverage over the next 12 to 18 months sits in markets where firms have the largest presence: New York, Washington, Chicago and Los Angeles. For different reasons, these markets have been more challenged economically and remain behind rather than ahead of the overall U.S. recovery.

Across the major Canadian markets, law firms will experience more favourable conditions than they likely will in the U.S. over the next several years. The development cycle across key markets such as Toronto, Calgary and Vancouver is fairly robust, providing firms options in those new developments, but also in the second-generation options left behind by other firms. As a result of supply dynamics moving with law firms over the next 24 to 36 months, we expect rents to peak as well.

In Europe, real estate market conditions are diverging. The supply of available prime office stock in the City of London is diminishing and law firms face the potential for rental increases and diminishing incentives due to a number of large lettings and diminishing supply in Grade A buildings. In Germany, too, law firms may face more landlord-favourable conditions over the next 24 months in select locations including Munich and Frankfurt.

Other European markets however offer greater opportunities for law firms to take advantage of more tenant-favourable conditions and improve the quality of their real estate or reduce costs. In Milan, Paris, Brussels, Madrid and Warsaw, real estate market conditions will be in favour of law firms in 2014.

In Asia Pacific, office leasing activity has reduced in many markets mirroring greater uncertainty in economic growth trajectories. In the regional hubs of Singapore and Hong Kong, rental conditions have been softer in 2013 with rent declines seen in Hong Kong in the first half of 2013. Market conditions will turn more toward landlords in both markets as we move into 2014. For law firms focused on Beijing and Tokyo, rents are likely to rise in both going into 2014, whereas Sydney, Melbourne and Shanghai will offer more favourable real estate market conditions ahead.

Global clients drive law firm expansion into emerging markets Despite some tapering of growth prospects in large emerging markets such as China, India and Brazil, international law firms are continuing to look to emerging markets for future growth potential. Driven largely by the global expansion of their clients, emerging markets including Africa have been on the agenda for a growing number of firms. In Africa, corporate growth is being driven by financial services, consumer goods, telecoms, infrastructure, energy and natural resource industries and is creating growing business opportunities for law firms. Routes to entry in Africa vary with firms such as Clifford Chance, Norton Rose and Allen & Overy opening offices in the past two years, while others including Linklaters and Eversheds have formed partnerships with local players. Acquisition is another favoured route and the June tie-up between Norton Rose and Fulbright & Jaworski will provide Norton Rose with deeper coverage in Africa through existing Fulbright & Jaworski offices.

Entry into new and emerging markets creates a range of challenges for law firms looking to open offices. Access to reliable property data


is key in an opaque market and working with partners who have a deep understanding of the market is also important.

Strategic updates from law firms indicate this growth is set to continue with Clifford Chance announcing plans to consider its options in other key regional hubs including Egypt, Nigeria and South Africa and Norton Rose recently outlining intentions to extend its network to African jurisdictions such as Angola, Egypt, Kenya, Mozambique and Nigeria amid the firm’s fast global expansion.

Another opportunity for law firms revolves around space utilization. Law firms are facing the continuing challenge of balancing increasing client expectations and client desire to drive down costs. As a result, many law firms remain focused on managing the cost of their real estate portfolio more effectively and maximising operating efficiency.

Firms that embrace modern layouts and enhanced efficiency measures have the opportunity to shrink real estate occupancy by more than 15.0 percent, providing an opportunity to cap cost structures in a still-challenging business climate. In today’s real estate market, evolving demographics are encouraging greater collaboration among colleagues and new patterns for how and where we work. This shift has not just affected law firms, but banks, consulting firms, technology companies and really any office tenant across the globe. The focus on workplace optimisation will remain a key priority for law firms as they implement global real estate strategies into 2014 and beyond. As has been the case in the past, U.S. firms will continue to lag their London counterparts in moving to even more aggressive utilization tactics, but they are gradually over time adapting some of these proactive measures.

Global law firm trends

of global markets polled expect rents to increase in 2014...

At the same time, concessions provided to law firms paint more of a blurred picture:

Of global markets polled, overall, law firm demand is stable

Tenant-favourablemarkets waning...

of law firms polled are focused on using space more efficiently

67%$

...meaning leverage is moving away from law firms.

44%

66%

concessionsstable

33% 23%

45%

26%8%

2013

20142015

stable60%

increase23%

decrease14%

tenant-favourable

concessionsdecreasing concessions

increasing


Law firm market map

Atlanta

Chicago

London CityGermany

Warsaw

Mosow

MilanParis

Madrid

Dubai &Abu Dhabi

Brussels

Amsterdam

Singapore

TokyoShanghai

SydneyMelbourne

Hong Kong

Beijing

Vancouver Calgary Toronto Montreal

San Francisco Philadelphia

Miami

Los Angeles Dallas

Houston

BostonNew York

Washington DC

Global office property clock

The clock diagram illustrates where Jones Lang LaSalle estimates each prime office market is within its individual rental cycle as of October 2013.

Markets move around the clock at different speeds and directions. The diagram is a convenient method of comparing the relative position of markets in their rental cycle. Their position is not necessarily representative of investment or development market

prospects. Their position refers to prime face rental values. Markets with a step pattern of rental growth do not tend to follow conventional cycles and are likely to move between the hours of 9 and 12 o’clock only, with 9 o’clock representing a jump in rental levels following a period of stability.

Rental growthslowing

Rentsfalling

Rental growthaccelerating

Rentsbottoming out

Los Angeles, Miami

Dallas, Düsseldorf

Houston, San Francisco

Brussels, Chicago, Hong Kong, Singapore

Atlanta, Philadelphia, Shanghai

Boston

Dubai, New York

London

Washington, DC

Sydney

Madrid

Beijing, Melbourne

Abu Dubai

Amsterdam

Milan

Calgary

Warsaw

Berlin, Hamburg, Moscow

Frankfurt

Munich

Cologne, Stuttgart, TorontoVancouver Montréal

AmericasAsia PacificEMEA

Tokyo


Law firm market map

Atlanta

Chicago

London CityGermany

Warsaw

Mosow

MilanParis

Madrid

Dubai &Abu Dhabi

Brussels

Amsterdam

Singapore

TokyoShanghai

SydneyMelbourne

Hong Kong

Beijing

Vancouver Calgary Toronto Montreal

San Francisco Philadelphia

Miami

Los Angeles Dallas

Houston

BostonNew York

Washington DC

Global office property clock

The clock diagram illustrates where Jones Lang LaSalle estimates each prime office market is within its individual rental cycle as of October 2013.

Markets move around the clock at different speeds and directions. The diagram is a convenient method of comparing the relative position of markets in their rental cycle. Their position is not necessarily representative of investment or development market

prospects. Their position refers to prime face rental values. Markets with a step pattern of rental growth do not tend to follow conventional cycles and are likely to move between the hours of 9 and 12 o’clock only, with 9 o’clock representing a jump in rental levels following a period of stability.

Rental growthslowing

Rentsfalling

Rental growthaccelerating

Rentsbottoming out

Los Angeles, Miami

Dallas, Düsseldorf

Houston, San Francisco

Brussels, Chicago, Hong Kong, Singapore

Atlanta, Philadelphia, Shanghai

Boston

Dubai, New York

London

Washington, DC

Sydney

Madrid

Beijing, Melbourne

Abu Dubai

Amsterdam

Milan

Calgary

Warsaw

Berlin, Hamburg, Moscow

Frankfurt

Munich

Cologne, Stuttgart, TorontoVancouver Montréal, Paris

AmericasAsia PacificEMEA

Tokyo


Americas

Need?

Atlanta

Challenges for law firms• Particularly in Buckhead, there is limited availability of large contiguous blocks

of premium space in the Trophy towers. • Pricing has begun to tighten in both Buckhead and Midtown and landlords have

tightened their fists on concessions.

Opportunities for law firms• Dissolutions and sublease dispositions have created additional space options

for tenants.• Competition in the marketplace is limited by a finite number of near-term

lease expirations.

Law firm activity has been relatively quiet for the last 24 months after several years on the immediate heels of the recession, in which some of the city’s biggest firms committed to relocating or renewing existing space. Currently, there are no big firms in the market on par with what was seen in 2010 and 2011. Activity in the traditional law firm submarkets has been muted, if only because most of the biggest firms have already made their real estate plays. Two years ago, large firms were giving back significant amounts of space, a trend which has since stabilized since most of the activity has stemmed from mid-sized and small firms.

For those who are in the market for space, conditions are starting to tighten. Firms seeking premium high-floor Trophy space in Buckhead will find their options extremely limited due to lack of big block space. Midtown offers more flexibility and, additionally, has proven to be the go-to submarket for the greatest concentration of law firms over the last 15 years.

Locational preference: Atlanta’s largest and most venerable law firms are located in the Central Business District along the Peachtree corridor in A-plus tower space. The Midtown submarket houses the largest concentration of legal tenants, although some firms remain Downtown for convenient access to the city’s courthouses and government agencies. To the north, Buckhead’s financial district has also attracted some of Atlanta’s most visible firms; however, few big blocks of contiguous premium space remain in Buckhead that can accommodate significant requirements, whereas Midtown still has plenty of options.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Fish & Richardson 25,000

Foltz Martin 20,000

Bryan Cave1201 West Peachtree Street152,383 s.f.Renewal

Hunton & Williams600 Peachtree Street45,707 s.f.Renewal

Johnson & Freedman 1587 Northeast Expressway 50,000 s.f. Renewal

2013 LAW FIRM COMPLETED TRANSACTIONS

OUTLOOK PRICING AND INCENTIVE AVERAGES

2013 20152014 2016 2017 Tenant-favourable marketNeutral market Landlord-favourable market

Class A asking rent ($ p.s.f) Class A annual escalation

TI allowance ($ p.s.f.)** Free rent (months)**

Number of law firms occupying greater than 50,000 s.f.

21Percent of Class A market

occupied by law firms

11.2%

$29.80 3.6%

$50.00/$25.00 12/3

Number of AmLaw 100 firms with offices locally

5Percent of law firms comprising

active tenants in the market

2.0%

*rent difference from Class A average

**averages on 10-year new/renewal transactions

Premium for Trophy space*

Discount for negotiated rent*

Discount for sublease space*

13.1% 3.6% 26.0%


Americas

Need?

Atlanta

Challenges for law firms• Particularly in Buckhead, there is limited availability of large contiguous blocks

of premium space in the Trophy towers. • Pricing has begun to tighten in both Buckhead and Midtown and landlords have

tightened their fists on concessions.

Opportunities for law firms• Dissolutions and sublease dispositions have created additional space options

for tenants.• Competition in the marketplace is limited by a finite number of near-term

lease expirations.

Law firm activity has been relatively quiet for the last 24 months after several years on the immediate heels of the recession, in which some of the city’s biggest firms committed to relocating or renewing existing space. Currently, there are no big firms in the market on par with what was seen in 2010 and 2011. Activity in the traditional law firm submarkets has been muted, if only because most of the biggest firms have already made their real estate plays. Two years ago, large firms were giving back significant amounts of space, a trend which has since stabilized since most of the activity has stemmed from mid-sized and small firms.

For those who are in the market for space, conditions are starting to tighten. Firms seeking premium high-floor Trophy space in Buckhead will find their options extremely limited due to lack of big block space. Midtown offers more flexibility and, additionally, has proven to be the go-to submarket for the greatest concentration of law firms over the last 15 years.

Locational preference: Atlanta’s largest and most venerable law firms are located in the Central Business Districtalong the Peachtree corridor in A-plus tower space. The Midtown submarket houses the largest concentration of legal tenants, although some firms remain Downtown for convenient access to the city’s courthouses and government agencies. To the north, Buckhead’s financial district has also attracted some of Atlanta’s most visible firms; however, few big blocks of contiguous premium space remain in Buckhead that can accommodate significant requirements, whereas Midtown still has plenty of options.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Fish & Richardson 25,000

Foltz Martin 20,000

Bryan Cave1201 West Peachtree Street152,383 s.f.Renewal

Hunton & Williams600 Peachtree Street45,707 s.f.Renewal

Johnson & Freedman 1587 Northeast Expressway 50,000 s.f. Renewal



2013 20152014 2016 2017 Tenant-favourable market Neutral market Landlord-favourable market






11.2%

$29.80 3.6%

$50.00/$25.00 12/3




2.0%






13.1% 3.6% 26.0%


Chicago

Challenges for law firms• The market for high-end, high-rise Trophy space is still tight so firms are facing

more landlord favourable conditions. • As the number of large-block spaces decline, firms in need of 100,000 square

feet or more have fewer options.

Opportunities for law firms• Smaller and emerging firms have more opportunities for good deals. • Cost-saving solutions that firms are making could allow for more future growth,

which would drive greater real estate needs in the future.

For the first time since 2009, a new office tower is under construction in downtown Chicago and two local law firms have already announced plans to relocate to the prime Class A tower. McDermott Will has signed a lease for 225,000 square feet at the new West Loop development, called River Point.

With the market for high-end, high-rise Trophy space tightening, firms seeking such space are seeing fewer landlord concessions, while others in the market for standard Class A and B space still have leverage. Once River Point is delivered, though, the market for Trophy blocks is expected to loosen slightly, particularly if a second new building commences.

As in many markets across the U.S., Chicago law firms are increasingly cautious and efficient with their space by shifting to single-sized offices, adding interior offices and reducing their footprint by restructuring their leases or subleasing a portion of their current space. Of the top 25 Chicago law firms, 15 have either downsized or sublet space in the past few years. A recent example of this is the 55,000-square-foot sublease of Locke Lord’s space at 111 S Wacker Drive by Harris Associates.

Locational preference: Most of Chicago’s largest law firm tenants are located in the West Loop and Central Loop submarkets and a few are in the River North. The Central Loop is also home to the largest share of the market’s small and medium-sized firms. The East Loop is still a viable option for firms looking for space at competitive rates. There are an abundance of large blocks available with views of Grant Park or Lake Michigan.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Seyfarth Shaw 200,000

Holland & Knight 100,000

Freeborn & Peters 90,000

McDermott 444 W Lake Street 225,000 s.f. Relocation

Dentons 233 S Wacker Drive204,705 s.f. Relocation (in building)

Lewis Brisbois 550 W Adams Street54,782 s.f.Renewal w/ expansion


OUTLOOK

Tenant-favourable marketNeutral market Landlord-favourable market




17.6%

$36.41 2.5%

$57.00/$28.00 9/5




13.8%






21.4% 5.0% 35.5%

2013 20152014 2016 2017

PRICING AND INCENTIVE AVERAGES



Boston

Challenges for law firms• Rising rents prompt large users to seek alternative spaces outside the

established submarkets of the Back Bay and the Financial District.• Average-sized users compete with high-tech firms for spaces within the 10,000

to 30,000-square-foot range.• Concession packages are becoming less attractive as free rent and tenant

improvement allowances are decreasing.Opportunities for law firms• Options exist for build-to-suit opportunity and brand new spaces throughout

the Seaport District and downtown.• Low and mid-rise options present cost-reducing solutions to small, growing

law firms.• Lease expirations from major corporate firms provide options on large blocks

over the next two years.

Law practices in Boston have begun to turn the corner as evidenced by the positive employment growth over the past year. The city of Boston is experiencing growth in the intellectual property law practice, spurred by the area’s rise in the high-tech and life sciences fields. As a result, the Seaport District, dubbed the Innovation District of Boston and home to a growing number of high-tech start-ups and pharmaceutical giant Vertex, has attracted law firms from within and outside Boston looking to maximize proximity to potential clients. The area also presents build-to-suit opportunities as restacking current spaces has proven costly and inefficient. For instance, Finnegan announced its move to the Seaport in 2012 following Vertex’s move; Concord, MA-based Hamilton Brook will open a Seaport branch looking to compete in the IP space; and Goodwin Procter signed a build-to-suit lease to occupy 360,000 square feet at Fan Pier, downsizing from 415,000 square feet in Financial District.

Due to the rightsizing trend, however, Boston law firms are not increasing their footprints in the same proportion to the numbers of their employees as they used to. Advanced mobile technology, cost cutting measures and open-space work environment are examples of factors leading to fewer square feet per employee across law firms. Some have eliminated the needs for support roles in high-cost spaces altogether, choosing to establish a centralized support offices elsewhere or outsource to third-party business services companies.

Locational preference: The city’s premier law firms occupy space in the most prestigious office towers in Boston’sBack Bay, Financial and Seaport Districts.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Choate 250,000

Pierce Atwood 30,000

Sherin & Lodgen 30,000

Goodwin Procter 2 Harbor Shore Drive360,000 s.f.Relocation

Skadden 500 Boylston Street 48,000 s.f.Relocation

Todd & Weld One Federal Street 25,000 s.f. Relocation



Tenant-favourable market Neutral market Landlord-favourable market






17.6%

$50.67 $1.00

$50.00/$30.00 4/2




8.4%






20.0% 10.0% 30.0%

2013 20152014 2016 2017


Chicago

Challenges for law firms• The market for high-end, high-rise Trophy space is still tight so firms are facing

more landlord favourable conditions. • As the number of large-block spaces decline, firms in need of 100,000 square

feet or more have fewer options.

Opportunities for law firms• Smaller and emerging firms have more opportunities for good deals. • Cost-saving solutions that firms are making could allow for more future growth,

which would drive greater real estate needs in the future.

For the first time since 2009, a new office tower is under construction in downtown Chicago and two local law firms have already announced plans to relocate to the prime Class A tower. McDermott Will has signed a lease for 225,000 square feet at the new West Loop development, called River Point.

With the market for high-end, high-rise Trophy space tightening, firms seeking such space are seeing fewer landlord concessions, while others in the market for standard Class A and B space still have leverage. Once River Point is delivered, though, the market for Trophy blocks is expected to loosen slightly, particularly if a second new building commences.

As in many markets across the U.S., Chicago law firms are increasingly cautious and efficient with their space by shifting to single-sized offices, adding interior offices and reducing their footprint by restructuring their leases or subleasing a portion of their current space. Of the top 25 Chicago law firms, 15 have either downsized or sublet space in the past few years. A recent example of this is the 55,000-square-foot sublease of Locke Lord’s space at 111 S Wacker Drive by Harris Associates.

Locational preference: Most of Chicago’s largest law firm tenants are located in the West Loop and Central Loop submarkets and a few are in the River North. The Central Loop is also home to the largest share of the market’s small and medium-sized firms. The East Loop is still a viable option for firms looking for space at competitive rates. There are an abundance of large blocks available with views of Grant Park or Lake Michigan.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Seyfarth Shaw 200,000

Holland & Knight 100,000

Freeborn & Peters 90,000

McDermott 444 W Lake Street 225,000 s.f. Relocation

Dentons 233 S Wacker Drive 204,705 s.f. Relocation (in building)

Lewis Brisbois 550 W Adams Street54,782 s.f.Renewal w/ expansion


OUTLOOK





17.6%

$36.41 2.5%

$57.00/$28.00 9/5




13.8%






21.4% 5.0% 35.5%

2013 20152014 2016 2017




Boston

Challenges for law firms• Rising rents prompt large users to seek alternative spaces outside the

established submarkets of the Back Bay and the Financial District.• Average-sized users compete with high-tech firms for spaces within the 10,000

to 30,000-square-foot range.• Concession packages are becoming less attractive as free rent and tenant

improvement allowances are decreasing.Opportunities for law firms• Options exist for build-to-suit opportunity and brand new spaces throughout

the Seaport District and downtown.• Low and mid-rise options present cost-reducing solutions to small, growing

law firms.• Lease expirations from major corporate firms provide options on large blocks

over the next two years.

Law practices in Boston have begun to turn the corner as evidenced by the positive employment growth over the past year. The city of Boston is experiencing growth in the intellectual property law practice, spurred by the area’s rise in the high-tech and life sciences fields. As a result, the Seaport District, dubbed the Innovation District of Boston and home to a growing number of high-tech start-ups and pharmaceutical giant Vertex, has attracted law firms from within and outside Boston looking to maximize proximity to potential clients. The area also presents build-to-suit opportunities as restacking current spaces has proven costly and inefficient. For instance, Finnegan announced its move to the Seaport in 2012 following Vertex’s move; Concord, MA-based Hamilton Brook will open a Seaport branch looking to compete in the IP space; and Goodwin Procter signed a build-to-suit lease to occupy 360,000 square feet at Fan Pier, downsizing from 415,000 square feet in Financial District.

Due to the rightsizing trend, however, Boston law firms are not increasing their footprints in the same proportion to the numbers of their employees as they used to. Advanced mobile technology, cost cutting measures and open-space work environment are examples of factors leading to fewer square feet per employee across law firms. Some have eliminated the needs for support roles in high-cost spaces altogether, choosing to establish a centralized support offices elsewhere or outsource to third-party business services companies.

Locational preference: The city’s premier law firms occupy space in the most prestigious office towers in Boston’s Back Bay, Financial and Seaport Districts.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Choate 250,000

Pierce Atwood 30,000

Sherin & Lodgen 30,000

Goodwin Procter 2 Harbor Shore Drive360,000 s.f.Relocation

Skadden 500 Boylston Street 48,000 s.f.Relocation

Todd & Weld One Federal Street 25,000 s.f. Relocation









17.6%

$50.67 $1.00

$50.00/$30.00 4/2




8.4%






20.0% 10.0% 30.0%

2013 20152014 2016 2017


Houston

Challenges for law firms• CBD vacancy is currently very low, making it difficult to expand or relocate to

large blocks in Class A buildings.• With limited availability, rents will continue to increase, especially in A+ buildings.• Firms must be willing to commit to longer leases than they may desire in order to

gain a more competitive rent on space.

Opportunities for law firms• West Houston development remains strong, offering an alternative to the

inner-loop locations and access to a growing number of energy firms in that area.

• With development of the Grand Parkway, future projects are being proposed farther outside of CBD, which could mean a cheaper cost for firms looking to move outward.

The Houston office market continues to grow, largely in part due to the impact of the strength of the energy sector on the local economy. For this reason, tenants, especially energy-related law firms, are drawn to Houston, making space options scarcer. In the CBD, the vacancy rate for Class A space is currently at 9.2 percent, supporting evidence for the reality that large blocks are tough to piece together. As a result of this, when looking at law firm activity, most firms have been forced to renew their leases rather than relocate to new space. Similarly, even in renewal negotiations, landlords currently have the upper hand in the market and are able to increase asking rates across the board. Expect this to be the case for the next several quarters until the market supply can meet the needs of high-end tenants.

While options for Class A space downtown are very limited, there are a number of proposed buildings and new projects that could potentially draw some of the law firms away from the CBD. These include BLVD Place in The Galleria, Kirby Grove in Greenway Plaza and CityCentre Five in The Energy Corridor.

Locational preference: Houston law firms are found mostly in the CBD submarket. They are concentrated in Class A buildings with some of the most expensive rental rates in the city. Because of the lack of vacancy downtown, if law firms were to move they would consider moving to Midtown, Greenway Plaza and Galleria submarkets into new and proposed buildings with high-end finishes.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Gardere 100,000

Akin Gump 75,000

FosterQuan 21,572

BakerHostetler 811 Main Street 75,737 s.f. Relocation

Linn Thurber 3555 Timmons Lane 30,637 s.f. Renewal

Strasburger 909 Fannin 28,226 s.f. Expansion






16.0%

$39.20 $0.50

$50.00/$35.00 4/2




2.2%






5.0% 4.0% 20.0%

2013 20152014 2016 2017




OUTLOOK

Dallas

Challenges for law firms• The market has shifted from strongly tenant-favourable to neutral of late;

effective rates are rising, especially in Uptown.• Limited new construction over the next couple years will force law firms

with near-term lease expirations to renew in place or consider second- generation space.

• Financing constraints for new development limits construction levels below historic norm.

Opportunities for law firms• Full floor tenants or smaller continue to have a plethora of options.• One or two new construction projects may begin construction (could deliver in

the next 24 to 30 months).• Increase in institutional ownership in CBD makes existing properties more

attractive to law firms.

Tight market conditions are beginning to drive the latest office construction cycle in Dallas’ Downtown. While law firms alone do not typically kick-off new construction, they are significant tenants in AA and Trophy assets in the CBD and Uptown areas. Timing looks optimum for new construction because a great deal of churn is taking shape as leases expire at a number of major law firms over the next four years.

This pattern occurred in the last cycle when Thompson & Knight (One Arts Plaza), Koons Fuller (Park Seventeen) and Patton Boggs (2000 McKinney) all took substantial blocks in the newest offerings. Halls’ Arts District project will be the next office building to break ground. Although KPMG is the lead tenant, Jackson Walker has a deal in the works for up to a 100,000-square-foot block.

Effective rents on these new projects are significantly higher (typically about 30.0 percent) than average existing Class A rates. To balance these costs, law firms are optimizing their space. Some large firms with leases expiring near-term are reducing their requirements by 40.0 percent. A few regional-scale firms, however, have bucked the higher rents, opting for more economical, existing downtown Class A space.

Locational preference: The majority of law firms (78.0 percent) are located within the downtown area (the Dallas CBD & Uptown), with the next largest concentrations in Central Expressway, LBJ and Far North Dallas. The larger law firms are concentrated in the AA and Trophy properties of the Dallas CBD and Uptown. Their movement will parallel any new, high-end development delivered in these submarkets. Both the CBD’s and Uptown’s latest spec developments are significantly occupied by law firms.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Locke Lord 160,000

Gardere 110,000

Jackson Walker 80,000

Hartline Dacus 6688 N Central Expressway 36,603 s.f. Renewal

Jim Adler & Associates 2711 N Haskell Avenue28,162 s.f. Relocation

In addition to the above mid-sized deals that closed in 2013, several high-profile law firm leases were completed in the latter part of 2012 including leases by Jones Day and Akin Gump for 133,187 s.f. and 104,277 s.f., respectively, as well as mid-sized leases finalized by Munsch Hardt (78,524 s.f.) Baron Budd (47,077 s.f.).


OUTLOOK





16.4%

$24.31 2.5%

$45.00/$10.00 12/6




4.9%






30.0% 12.0% 40.0%

2013 20152014 2016 2017





Miami

Challenges for law firms• Contiguous Trophy space with prime views is limited.• Concessions continue to whittle down for both new and renewal activity.

Opportunities for law firms• While pricing is shifting, overall levels remain favourable and are on par with

rents nearly seven years ago.• Tenant improvement allowance offers, particularly for the newest buildings,

remain high, compared to historic norms.• New assets/upgrades from existing product offer greater efficiencies,

upgraded finishes and increased amenities.

Over the last two years, mega deals (40,000 square feet plus) throughout Miami reveal a diversified office base with the majority of companies preferring suburban settings. Among the largest law firms, however, the urban core remains the location of choice as the CBD captured all of the leases within this size category. Florida’s top five law firms each have a CBD Trophy address. Congregating among like users, all but one of this year’s top law firm transactions were either CBD renewals or relocations from within the CBD.

Size still matters and tenant-favourable conditions persist for the crème of the crop users who can choose premium space from new construction as well as second-generation options. Downsizing of office space needs does not necessarily mean downsizing of staff. Rightsizing or efficiencies due to space design and rapidly changing technology have allowed more space for more employees. Most core and new business law practice areas here are either stable or growing.

National law firms establishing a Miami foothold are strengthening and underscored by new-to-market users and acquisitions/mergers/new law firm formations. What is different is the relatively high ratio and swelling presence of AmLaw 200 firms. A variety of demand factors is at play fueled by the significant and rewarding opportunity for capturing international business, especially from Latin America.

Locational preference: Miami’s CBD is comprised of two submarkets, Brickell and Downtown. The majority (57.3 percent of Class A law firm users) occupy space within the Downtown sector of the urban core. Law firm requirements presently comprise over 420,000 square feet throughout Miami. Of this, nearly 384,000 square feet or 90.0 percent are designated for the CBD.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Shutts & Bowen 80,000

White & Case 60,000

GrayRobinson 35,000

Fowler White Burnett 1395 Brickell Avenue 30,000 s.f. Renewal with contraction

Weil 1395 Brickell Avenue 24,000 s.f. Renewal

Gunster 600 Brickell Avenue 21,000 s.f. Relocation






21.0%

$40.46 3.0%

$55.00/$55.00 7/7




19.5%






10.0% 4.5% 25.0%

2013 20152014 2016 2017




OUTLOOKChallenges for law firms• CBD Class A ownership consolidation is leading to sizable market share likely to

lead to high rents.• Increasing residential rents in the CBD are making it more expensive for new

associates to locate close to work.• CBD and Century City parking remain some of the most expensive in the Los

Angeles market.Opportunities for law firms• Large near-term Westside lease expiration creating short-term leverage for

law firms looking at early renewals.• Concession packages have increased to all-time highs.• Robust media and entertainment sector performance, coupled with new

technology entrants from Silicon Valley, are creating opportunities for specialized practice groups.

We continue to see Los Angeles law firms playing musical chairs with a market driven by cost-saving opportunities. Los Angeles remains a tenant-favourable market and owners have been offering generous rents and concessions to attract larger tenants. Blank and Rome relocated within Century City from Watt Plaza to the Century Park Towers. Additionally, CohnReznick consolidated their Westside operations, combining their Brentwood and Century City offices and moving into the Towers.

We also witnessed a few new entrants to the Los Angeles market. Barnes and Thornburg signed a new lease at 2049 Century Park East. The firm has been adding headcount nationwide and chose to expand its presence in Southern California by opening an office in Century City at 2049 Century Park East. Philadelphia-based Pepper Hamilton also opened a new office in the Los Angeles CBD at 350 S Grand Avenue.

The Century City and Downtown Los Angeles markets have high vacancy and a large number of available blocks of space. Changing ownership partners in both markets will infuse cash to fund improvements as well renewed competition for top-tier tenants in the market.

Locational preference: Los Angeles law firms are concentrated in the Downtown CBD near the courthouses. Specialized practice groups catering to entertainment and media companies are located close to their clients on the Westside in the Century City submarket. Moving ahead, some law firm tenants will elect to be closer to tech and entertainment clients and thus will migrate to more non-traditional low rises in Santa Monica and Playa Vista.

Los Angeles

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Sidley Austin 250,000

Nixon Peabody 75,000

White & Case 50,000

Bowman and Brooke 970 West 190th Street 36,703 s.f. Relocation

Blank Rome 2029 Century Park East 25,723 s.f. Relocation

Barnes & Thornburg 2049 Century Park E 25,273 s.f. Relocation






21.9%

$41.99 4.0%

$55.00/$37.00 10/10




21.0%






4.4% 20.5% 37.3%

2013 20152014 2016 2017




OUTLOOK


Philadelphia

Challenges for law firms• Stabilized Trophy and Class A landlords are pushing rents for quality

availabilities.• Competition is growing for mid-sized quality blocks of space, between 25,000

and 50,000 square feet.• Inbound demand is spurring increased competition for space.

Opportunities for law firms• Pending large tenant leasing decisions could increase Trophy availability,

softening concessions in the short term.• Repositioned Class A assets will bring new alternatives to market.• Availabilities for small-sized law firms, less than 10,000 square feet,

remain abundant.

Following the highest volume of large law firm transactions in more than 15 years in 2012, renewals by Pepper Hamilton and Drinker Biddle in the first half of 2013 finalized near-term, large firm rollover, shifting demand to mid-sized firms in the Philadelphia CBD. Amidst no available Trophy blocks larger than 100,000 square feet and rents 25.0 percent below replacement cost rents, both firms opted to renew: Pepper Hamilton renewed in place and Drinker Biddle will reduce its footprint by 25.0 percent. While law firms continue to look at increasing space efficiency, less than 20.0 percent of transactions entailed rightsizing—a cross sector shift exhibited in 2013 deal flow thus far.

While alternatives exist across desirable Trophy and Class A assets, growing competition from mid-sized legal and financial services tenants will drive the decline of quality blocks, a catalyst for decreased tenant leverage and future Market Street West rent growth. Pond LeHocky, Hangley Aronchick and Weber Gallagher—all between 30,000 and 60,000 square feet—are currently in the market for space. These users additionally face competition from new users to the market: Law firms Gordon & Rees and Carroll McNulty secured new offices between 10,000 and 20,000 square feet at Trophy assets.

Locational preference: The majority of Philadelphia’s law firms are located in the CBD’s Market Street West submarket. This location provides easy access to abundant amenities and immediate proximity to the city’s concentration of professional services companies. Despite upward rental pressure at Trophy product and limited availability of contiguous blocks, Market Street West will remain the core location for law firms.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Pond LeHocky 60,000

Hangley Aronchick 40,000

Weber Gallagher 33,000

Pepper Hamilton Two Logan Square268,000 s.f. Renewal

Drinker Biddle One Logan Square 155,000 s.f. Renewal with contraction

Akin Gump Two Commerce Square18,000 s.f. Renewal with expansion






20.2%

$27.43 $0.50

$40.00/$25.00 6/4




8.7%






20.3% 10.0% 11.4%

2013 20152014 2016 2017




OUTLOOK

New York

Challenges for law firms• Value options will become limited as demand from other industries, including

technology and media, increases.• Rents in top-tier Trophy buildings have increased as demand from hedge funds,

private equity and wealth management expands.• Limited new construction on the east side of Midtown could force some firms to

move outside of traditional submarkets.Opportunities for law firms• Landlords are eager to avoid the risk of down-time and cost of re-tenanting in

a flat market.• New construction in the Far West Side and Downtown will increase

viable options.• The potential rezoning of the area surrounding Grand Central Terminal

and Park Avenue would provide for new development in a law firm-concentrated submarket.

Stagnant employment growth in legal services, increased consolidation and improving space efficiencies, have resulted in overall negative absorption for the industry. In June, the New York-based law firm Weil Gotshal announced that it would eliminate 60 salaried attorneys and 110 staff as the result of diminished demand for high-end legal services. The firm is just one of the many that have announced either layoffs or scaled-back recruiting efforts.

As in the past, many law firms are opting to stay in place to avert significant relocation costs. Equally important, landlords have been reluctant to risk down-time and re-tenanting expenditures in a flat market. Simpson Thacher renewed for nearly 600,000 square feet at 425 Lexington Avenue in the largest law firm lease of the year. Of the top four law firm lease transactions year-to-date, all were renewals. When firms haves chosen to move in recent years, many have migrated to the west side of Midtown—for more efficient, large block availabilities in new construction—and in some cases downtown for higher-quality space at a discount to comparable spaces in Midtown.

Over the next year, mergers and acquisitions could further erode the industry’s total footprint. Growth—where it exists—has been in small to medium-sized firms, non-New York-based firms and those specializing in the legal needs of technology and media companies. These law firms have different space needs than Manhattan’s more traditional firms with many opting for value spaces in less conventional buildings or locations outside Midtown’s Trophy inventory.

Locational preference: Firms gravitate to newer Trophy/A buildings within the Columbus Circle, Grand Central, PlazaDistrict and Times Square in Midtown and the Financial District Downtown. Though large blocks of Class A space are becoming available Downtown at a significant discount to comparable Midtown space, most firms have remained in the Grand Central and Plaza Districts. The westward migration appears to have slowed down, until large blocks of Class A space in the under-construction Hudson Yards begin to hit the market in 2015 and beyond.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Weil Gotshal 500,000

Jones Day 400,000

White & Case 400,000

Simpson Thacher 425 Lexington Avenue 595,799 s.f. Renewal

Patterson Belknap 1133 Avenue of the Americas 198,000 s.f. Renewal

Baker Botts 30 Rockefeller Plaza 104,161 s.f. Renewal






11.4%

$74.26 1.6%

$56.00/$27.00 7/4




12.5%






15.0% 13.4% 20.1%

2013 20152014 2016 2017




OUTLOOK


Philadelphia

Challenges for law firms• Stabilized Trophy and Class A landlords are pushing rents for quality

availabilities.• Competition is growing for mid-sized quality blocks of space, between 25,000

and 50,000 square feet.• Inbound demand is spurring increased competition for space.

Opportunities for law firms• Pending large tenant leasing decisions could increase Trophy availability,

softening concessions in the short term.• Repositioned Class A assets will bring new alternatives to market.• Availabilities for small-sized law firms, less than 10,000 square feet,

remain abundant.

Following the highest volume of large law firm transactions in more than 15 years in 2012, renewals by Pepper Hamilton and Drinker Biddle in the first half of 2013 finalized near-term, large firm rollover, shifting demand to mid-sized firms in the Philadelphia CBD. Amidst no available Trophy blocks larger than 100,000 square feet and rents 25.0 percent below replacement cost rents, both firms opted to renew: Pepper Hamilton renewed in place and Drinker Biddle will reduce its footprint by 25.0 percent. While law firms continue to look at increasing space efficiency, less than 20.0 percent of transactions entailed rightsizing—a cross sector shift exhibited in 2013 deal flow thus far.

While alternatives exist across desirable Trophy and Class A assets, growing competition from mid-sized legal and financial services tenants will drive the decline of quality blocks, a catalyst for decreased tenant leverage and future Market Street West rent growth. Pond LeHocky, Hangley Aronchick and Weber Gallagher—all between 30,000 and 60,000 square feet—are currently in the market for space. These users additionally face competition from new users to the market: Law firms Gordon & Rees and Carroll McNulty secured new offices between 10,000 and 20,000 square feet at Trophy assets.

Locational preference: The majority of Philadelphia’s law firms are located in the CBD’s Market Street West submarket.This location provides easy access to abundant amenities and immediate proximity to the city’s concentration of professional services companies. Despite upward rental pressure at Trophy product and limited availability of contiguous blocks, Market Street West will remain the core location for law firms.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Pond LeHocky 60,000

Hangley Aronchick 40,000

Weber Gallagher 33,000

Pepper Hamilton Two Logan Square 268,000 s.f. Renewal

Drinker Biddle One Logan Square 155,000 s.f. Renewal with contraction

Akin Gump Two Commerce Square 18,000 s.f. Renewal with expansion






20.2%

$27.43 $0.50

$40.00/$25.00 6/4




8.7%






20.3% 10.0% 11.4%

2013 20152014 2016 2017




OUTLOOK

New York

Challenges for law firms• Value options will become limited as demand from other industries, including

technology and media, increases.• Rents in top-tier Trophy buildings have increased as demand from hedge funds,

private equity and wealth management expands.• Limited new construction on the east side of Midtown could force some firms to

move outside of traditional submarkets.Opportunities for law firms• Landlords are eager to avoid the risk of down-time and cost of re-tenanting in

a flat market.• New construction in the Far West Side and Downtown will increase

viable options.• The potential rezoning of the area surrounding Grand Central Terminal

and Park Avenue would provide for new development in a law firm-concentrated submarket.

Stagnant employment growth in legal services, increased consolidation and improving space efficiencies, have resulted in overall negative absorption for the industry. In June, the New York-based law firm Weil Gotshal announced that it would eliminate 60 salaried attorneys and 110 staff as the result of diminished demand for high-end legal services. The firm is just one of the many that have announced either layoffs or scaled-back recruiting efforts.

As in the past, many law firms are opting to stay in place to avert significant relocation costs. Equally important, landlords have been reluctant to risk down-time and re-tenanting expenditures in a flat market. Simpson Thacher renewed for nearly 600,000 square feet at 425 Lexington Avenue in the largest law firm lease of the year. Of the top four law firm lease transactions year-to-date, all were renewals. When firms haves chosen to move in recent years, many have migrated to the west side of Midtown—for more efficient, large block availabilities in new construction—and in some cases downtown for higher-quality space at a discount to comparable spaces in Midtown.

Over the next year, mergers and acquisitions could further erode the industry’s total footprint. Growth—where it exists—has been in small to medium-sized firms, non-New York-based firms and those specializing in the legal needs of technology and media companies. These law firms have different space needs than Manhattan’s more traditional firms with many opting for value spaces in less conventional buildings or locations outside Midtown’s Trophy inventory.

Locational preference: Firms gravitate to newer Trophy/A buildings within the Columbus Circle, Grand Central, Plaza District and Times Square in Midtown and the Financial District Downtown. Though large blocks of Class A space are becoming available Downtown at a significant discount to comparable Midtown space, most firms have remained in the Grand Central and Plaza Districts. The westward migration appears to have slowed down, until large blocks of Class A space in the under-construction Hudson Yards begin to hit the market in 2015 and beyond.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Weil Gotshal 500,000

Jones Day 400,000

White & Case 400,000

Simpson Thacher 425 Lexington Avenue595,799 s.f. Renewal

Patterson Belknap 1133 Avenue of the Americas 198,000 s.f. Renewal

Baker Botts 30 Rockefeller Plaza 104,161 s.f. Renewal






11.4%

$74.26 1.6%

$56.00/$27.00 7/4




12.5%






15.0% 13.4% 20.1%

2013 20152014 2016 2017




OUTLOOK


Washington, DC

Challenges for law firms• Quality existing blocks of space are dwindling and the under construction

pipeline is 75.0 percent preleased.• Prime locations for new developments are largely unavailable, so relocations to

new construction may require being located farther off-Metro in a fringe location.• Potential for rent increases exists once the current oversupply in the market

is reduced.Opportunities for law firms• Competition in the marketplace is low given a finite number of near-term lease

expirations and limited organic growth in the broader market.• Concession packages remain at all-time highs and generous free rent

and tenant improvement allowances have driven net effective rents down approximately 8.0 percent from their 2008 peak.

Washington, DC is one of the top global law markets, containing the second highest number of lawyers in the country following New York. AmLaw 100 law firms located within the District of Columbia recorded profit growth of 4.6 percent year-over-year, primarily a reflection of firms’ ability to cut costs. In recent years, some Washington, DC law firms have seen top-line revenues stagnate or decline as fee compression has intensified. As a result, many law firms maintained profit margins by becoming operationally leaner, trimming overhead and shifting administrative functions to lower cost markets. In 2013, Pillsbury, Patton Boggs and K&L Gates were three firms that moved forward with plans to cut local payrolls and trim their downtown Washington, DC real estate holdings.

The next wave of large law firm lease expirations is not set to occur for another few years, as over 4.0 million square feet of leases are set to expire over a 24-month period between 2016 and 2017. Large firms such as Hogan Lovells, Venable, Finnegan Henderson, Morgan Lewis and Steptoe & Johnson are expected to enter the market well ahead of their lease expirations in those years, evaluating both existing options and potential new developments.

Locational preference: The majority of law firms are located in the CBD, East End and Capitol Hill submarkets of Washington, DC. New developments with efficient floorplates are also attractive to law firms. Given few large existing quality blocks of space in the core, many AmLaw 100 firms are considering future developments with several of these options located in fringe locations of the CBD and East End, increasingly the northern part of the CBD or the emerging Mount Vernon Triangle segment of the East End.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Steptoe & Johnson 260,000

Reed Smith 80,000

Proskauer 75,000

Arnold & Porter 601 Massachusetts Avenue, NW 375,000 s.f. Relocation

Sidley Austin 1501 K Street, NW 289,000 s.f. Renewal

Pillsbury 1200 17th Street, NW 108,000 s.f. Relocation


OUTLOOK





45.0%

$59.50 2.3%

$95.00/$70.00 10/5




4.4%






24.8% 5.0% 32.2%

2013 20152014 2016 2017




San Francisco

Challenges for law firms• Law firms will continue to compete with high-growth technology tenants for large

blocks of space.• With several large lease expirations coming over the next two to three years,

tenants will have to weigh their options as rents continue to rise.• New supply slated to hit the market may prove cost-prohibitive for smaller firms.

Opportunities for law firms• A surge of new development delivering to the market this year will bring

welcome relief to an otherwise supply-constrained market.• As tech tenants compete over the hotly contested South of Market and South

Financial District submarkets, large blocks of space remain available in the North Financial District.

Activity among law firms has been greatly subdued over the past year, conceivably one of the most stagnant periods in the last decade, as the legal industry still recovers from declines experienced during the recession. Firms that have managed to succeed, however, are those with strong ties to the thriving technology industry and start-up community, such as Fenwick & West, Wilson Sonsini, and Cooley. These firms, as well as other law firms that have remained competitive, are some of the few maintaining their current footprints or expanding.

While law firms still experience moderate leverage in the market due to a significant amount of new supply coming online, the landlord community remains bullish as a result of the flourishing technology industry. Though, despite a slight rent premium for new construction, the capital expenditure involved in relocation is a bitter pill many law firms are unwilling to swallow.

Although the shifting landscape of the market presents its own challenges, law firms in San Francisco strive to enhance the quality and culture of their firms through creating more efficient, collaborative and welcoming office space as they look out over the next 10 to 20 years.

Locational preference: The vast majority of law firms prefer to office in high-profile buildings concentrated in orbordering the North Financial District, where there is a large concentration of premium Class A office product. Firms, especially within the AmLaw 100, also prefer to be located on higher floors with quality view space.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Cooley 150,000

Coblentz Patch Duffy 85,000

Fenwick & West 60,000

Gordon & Rees 275 Battery Street 50,195 s.f. Renewal

McKenna Long & Aldridge 1 Market Plaza, Spear Tower 42,288 s.f. Sublease

Allen Matkins 3 Embarcadero Center 39,825 s.f. Renewal






6.9%

$57.63 3.0%

$48.00/$25.00 4/2




7.7%






23.8% 5.0% 30.1%

2013 20152014 2016 2017




OUTLOOK


Washington, DC

Challenges for law firms• Quality existing blocks of space are dwindling and the under construction

pipeline is 75.0 percent preleased.• Prime locations for new developments are largely unavailable, so relocations to

new construction may require being located farther off-Metro in a fringe location.• Potential for rent increases exists once the current oversupply in the market

is reduced.Opportunities for law firms• Competition in the marketplace is low given a finite number of near-term lease

expirations and limited organic growth in the broader market.• Concession packages remain at all-time highs and generous free rent

and tenant improvement allowances have driven net effective rents down approximately 8.0 percent from their 2008 peak.

Washington, DC is one of the top global law markets, containing the second highest number of lawyers in the country following New York. AmLaw 100 law firms located within the District of Columbia recorded profit growth of 4.6 percent year-over-year, primarily a reflection of firms’ ability to cut costs. In recent years, some Washington, DC law firms have seen top-line revenues stagnate or decline as fee compression has intensified. As a result, many law firms maintained profit margins by becoming operationally leaner, trimming overhead and shifting administrative functions to lower cost markets. In 2013, Pillsbury, Patton Boggs and K&L Gates were three firms that moved forward with plans to cut local payrolls and trim their downtown Washington, DC real estate holdings.

The next wave of large law firm lease expirations is not set to occur for another few years, as over 4.0 million square feet of leases are set to expire over a 24-month period between 2016 and 2017. Large firms such as Hogan Lovells, Venable, Finnegan Henderson, Morgan Lewis and Steptoe & Johnson are expected to enter the market well ahead of their lease expirations in those years, evaluating both existing options and potential new developments.

Locational preference: The majority of law firms are located in the CBD, East End and Capitol Hill submarkets of Washington, DC. New developments with efficient floorplates are also attractive to law firms. Given few large existing quality blocks of space in the core, many AmLaw 100 firms are considering future developments with several of these options located in fringe locations of the CBD and East End, increasingly the northern part of the CBD or the emerging Mount Vernon Triangle segment of the East End.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Steptoe & Johnson 260,000

Reed Smith 80,000

Proskauer 75,000

Arnold & Porter 601 Massachusetts Avenue, NW 375,000 s.f. Relocation

Sidley Austin 1501 K Street, NW 289,000 s.f. Renewal

Pillsbury 1200 17th Street, NW 108,000 s.f. Relocation


OUTLOOK





45.0%

$59.50 2.3%

$95.00/$70.00 10/5




4.4%






24.8% 5.0% 32.2%

2013 20152014 2016 2017




San Francisco

Challenges for law firms• Law firms will continue to compete with high-growth technology tenants for large

blocks of space.• With several large lease expirations coming over the next two to three years,

tenants will have to weigh their options as rents continue to rise.• New supply slated to hit the market may prove cost-prohibitive for smaller firms.

Opportunities for law firms• A surge of new development delivering to the market this year will bring

welcome relief to an otherwise supply-constrained market.• As tech tenants compete over the hotly contested South of Market and South

Financial District submarkets, large blocks of space remain available in the North Financial District.

Activity among law firms has been greatly subdued over the past year, conceivably one of the most stagnant periods in the last decade, as the legal industry still recovers from declines experienced during the recession. Firms that have managed to succeed, however, are those with strong ties to the thriving technology industry and start-up community, such as Fenwick & West, Wilson Sonsini, and Cooley. These firms, as well as other law firms that have remained competitive, are some of the few maintaining their current footprints or expanding.

While law firms still experience moderate leverage in the market due to a significant amount of new supply coming online, the landlord community remains bullish as a result of the flourishing technology industry. Though, despite a slight rent premium for new construction, the capital expenditure involved in relocation is a bitter pill many law firms are unwilling to swallow.

Although the shifting landscape of the market presents its own challenges, law firms in San Francisco strive to enhance the quality and culture of their firms through creating more efficient, collaborative and welcoming office space as they look out over the next 10 to 20 years.

Locational preference: The vast majority of law firms prefer to office in high-profile buildings concentrated in or bordering the North Financial District, where there is a large concentration of premium Class A office product. Firms, especially within the AmLaw 100, also prefer to be located on higher floors with quality view space.

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)Cooley 150,000

Coblentz Patch Duffy 85,000

Fenwick & West 60,000

Gordon & Rees 275 Battery Street 50,195 s.f. Renewal

McKenna Long & Aldridge 1 Market Plaza, Spear Tower 42,288 s.f. Sublease

Allen Matkins 3 Embarcadero Center 39,825 s.f. Renewal






6.9%

$57.63 3.0%

$48.00/$25.00 4/2




7.7%






23.8% 5.0% 30.1%

2013 20152014 2016 2017




OUTLOOK


Locational preference: The largest law firms in Montreal are located in the CBD, specifically in the financial core and Downtown South market. For the most part, they are corporate law firms located along the René-Lévesque West / McGillCollege axis. Other firms have opted to have their offices in the de la Gauchetière West and Square-Victoria hub, located slightly south of the financial core. In addition, due to its proximity to the municipal court and Quebec Court of Appeal,the Old Montreal market also hosts a cluster of litigating law firms. As largeblocks of existing space are becoming available in the CBD, we can expect large corporate law firms to continue consolidation in the financial core where mostof their clients are located. We will also see some tenants in buildings locatedsouth of the financial core take advantage of the opportunity to relocate into morecentrally located and efficient office space. Litigating law firms desiring to remain in close proximity to the city’s main courthouses will continue to have difficultiesfinding large amounts of quality space and may be forced to look outside the Old Montreal market into the Downtown South area to meet such requirements.

Leasing activity for law firms has been very calm in 2013 across the CBD as a result of weak local economic output growth and an unusually small amount of law firms with leases coming to expiration in the next 12 months. Recently completed transactions by law firms across the CBD have been characterized by early renewals for stableamounts of square footage. Many large tenants with leases set to expire in the next 12 to 18 months have decided to stay on the sidelines hoping to secure a better deal in the coming quarters. Their patience might be rewarded as market conditions inthe CBD have been deteriorating since the beginning of 2013. A significant amount of large blocks of space in existing buildings have been added back to the market due to several large companies in the technology, gaming and engineering industriesdownsizing significantly.

In comparison to other businesses, law firms have fared well in spite of deterioratingmarket conditions and a large increase in the amount of available sublease spaces in the CBD. Their prudence and diligence in not overextending their office space requirements will allow them to maintain stable amounts of square footage in upcoming lease renewals. The weak demand outlook in the next 12 to 18 monthsfor large contiguous blocks of space in the financial core will give large law firms negotiating leverage in coming lease renewal negotiations. The increased competitionon the part of landlords to attract or retain these long-term tenants will put downward pressure on the average annual Class A rental increases and force landlords to provide tenants with more attractive lease concessions.

Montréal

Percent of Class A CBD market occupied by law firms

Number of law firms occupying > 50,000 s.f. in the market

8.1% 12

PRICING AND INCENTIVESOverall

Average Class A CBD asking rent $45.39

% annual change in Class A CBD asking rent 4.8%

Average % CBD rent discount for negotiated rent 12.5%

Equivelant U.S. rent (per square foot per year) $43.93

Top 3 challenges for law firms1. Low vacancy rates will continue to dominate Trophy buildings in the financial core in comparison to other Class A buildings across the CBD.2. Limited amounts of new building constructions set to be added to the CBD market in the next 12 to 18 months.3. Current large blocks of available space require significant capital expenditures to be brought up to the standards required by law firms.

Top 3 opportunities for law firms1. Large amounts of sublease spaces available at a discount in the financial core.2. New large blocks of space in existing buildings across the CBD are allowing tenants to consolidate and relocate into more efficiently laid out space.3. As vacancy increases in the CBD over the coming quarters, smaller law firms looking for expansion space will have plenty of options in quality buildings to

choose from.

Kugler Klandestin 1 Place Ville Marie10,525 s.f. Renewal

McMillan LLP 1000 Sherbrooke Street West36,102 s.f. Renewal

Davies Ward Phillips and Wineberg 1501 McGill College Avenue 73,443 s.f. Renewal

RECENT LAW FIRM COMPLETED TRANSACTIONS

OUTLOOK


Locational preference: Calgary’s largest law firms occupy the CBD East Core with the largest firms occupying the Banker’s Halls buildings. Medium-sized firms are concentrated in Class A & B buildings throughout East Core and West Core CBD. Law firms in Calgary are heavily entrenched and reluctant to move. In fact they most often expand in their existing buildings. With the large block of sublease spaces available in the Calgary CBD there exists many opportunities for firms to expand on floors in their existing buildings, albeit the space may not be contiguous.

Major law firms in Calgary tend to focus on Class A and AA space in the East Core of downtown Calgary. They also tend to anchor down as moving or relocating is not a common theme. The CBD East Core market is currently relatively well balanced although with a slate of new, large-scale AA office towers being constructed, 2017 could prove to be an auspicious time for tenants. Nearly 8.0 percent (as a percentage of existing CBD inventory) will be coming online during 2017 and 2018.

The largest growth market for law firms aligns with Calgary’s largest industry and it is corporate law that focuses on energy and securities law. Currently the marketplace is quite stable but it would appear that landlords will be losing their advantage, at least slightly, in the next three years. Deal inducements may need to increase and dramatically so to keep tenants engaged.

Quite unexpectedly there is not a large premium on rates for new construction space relative to existing Class A and AA space in the CBD market. In fact, often tenants can save money on operating costs / additional rent due to building efficiencies in new buildings.

Calgary



7.0% 7






Top 3 challenges for law firms1. Tight vacancy in Class A/AA and Trophy space.2. Parking costs and availability in the CBD.3. CBD traffic congestion.

Top 3 opportunities for law firms1. Large availability of discounted sublease space.2. High levels of AA inventory coming on stream in 2017.3. Reducing overall square foot requirements as employees work increasingly from home.

Blakes 888-3rd Sreet. SW 80,000 s.f. Renewal


OUTLOOK



Locational preference: The largest law firms in Montreal are located in the CBD, specifically in the financial core and Downtown South market. For the most part, they are corporate law firms located along the René-Lévesque West / McGill College axis. Other firms have opted to have their offices in the de la Gauchetière West and Square-Victoria hub, located slightly south of the financial core. In addition, due to its proximity to the municipal court and Quebec Court of Appeal, the Old Montreal market also hosts a cluster of litigating law firms. As large blocks of existing space are becoming available in the CBD, we can expect large corporate law firms to continue consolidation in the financial core where most of their clients are located. We will also see some tenants in buildings located south of the financial core take advantage of the opportunity to relocate into more centrally located and efficient office space. Litigating law firms desiring to remain in close proximity to the city’s main courthouses will continue to have difficulties finding large amounts of quality space and may be forced to look outside the Old Montreal market into the Downtown South area to meet such requirements.

Leasing activity for law firms has been very calm in 2013 across the CBD as a result of weak local economic output growth and an unusually small amount of law firms with leases coming to expiration in the next 12 months. Recently completed transactions by law firms across the CBD have been characterized by early renewals for stable amounts of square footage. Many large tenants with leases set to expire in the next 12 to 18 months have decided to stay on the sidelines hoping to secure a better deal in the coming quarters. Their patience might be rewarded as market conditions in the CBD have been deteriorating since the beginning of 2013. A significant amount of large blocks of space in existing buildings have been added back to the market due to several large companies in the technology, gaming and engineering industries downsizing significantly.

In comparison to other businesses, law firms have fared well in spite of deteriorating market conditions and a large increase in the amount of available sublease spaces in the CBD. Their prudence and diligence in not overextending their office space requirements will allow them to maintain stable amounts of square footage in upcoming lease renewals. The weak demand outlook in the next 12 to 18 months for large contiguous blocks of space in the financial core will give large law firms negotiating leverage in coming lease renewal negotiations. The increased competition on the part of landlords to attract or retain these long-term tenants will put downward pressure on the average annual Class A rental increases and force landlords to provide tenants with more attractive lease concessions.

Montréal



8.1% 12






Top 3 challenges for law firms1. Low vacancy rates will continue to dominate Trophy buildings in the financial core in comparison to other Class A buildings across the CBD.2. Limited amounts of new building constructions set to be added to the CBD market in the next 12 to 18 months.3. Current large blocks of available space require significant capital expenditures to be brought up to the standards required by law firms.

Top 3 opportunities for law firms1. Large amounts of sublease spaces available at a discount in the financial core.2. New large blocks of space in existing buildings across the CBD are allowing tenants to consolidate and relocate into more efficiently laid out space.3. As vacancy increases in the CBD over the coming quarters, smaller law firms looking for expansion space will have plenty of options in quality buildings to

choose from.

Kugler Klandestin 1 Place Ville Marie 10,525 s.f. Renewal

McMillan LLP 1000 Sherbrooke Street West 36,102 s.f. Renewal

Davies Ward Phillips and Wineberg 1501 McGill College Avenue 73,443 s.f. Renewal


OUTLOOK


Locational preference: Calgary’s largest law firms occupy the CBD East Core with the largest firms occupying the Banker’s Halls buildings. Medium-sized firms are concentrated in Class A & B buildings throughout East Core and West Core CBD. Law firms in Calgary are heavily entrenched and reluctant to move. In fact they most often expand in their existing buildings. With the large block of sublease spaces available in the Calgary CBD there exists many opportunities for firms to expand on floors in their existing buildings, albeit the space may not be contiguous.

Major law firms in Calgary tend to focus on Class A and AA space in the East Core of downtown Calgary. They also tend to anchor down as moving or relocating is not a common theme. The CBD East Core market is currently relatively well balanced although with a slate of new, large-scale AA office towers being constructed, 2017 could prove to be an auspicious time for tenants. Nearly 8.0 percent (as a percentage of existing CBD inventory) will be coming online during 2017 and 2018.

The largest growth market for law firms aligns with Calgary’s largest industry and it is corporate law that focuses on energy and securities law. Currently the marketplace is quite stable but it would appear that landlords will be losing their advantage, at least slightly, in the next three years. Deal inducements may need to increase and dramatically so to keep tenants engaged.

Quite unexpectedly there is not a large premium on rates for new construction space relative to existing Class A and AA space in the CBD market. In fact, often tenants can save money on operating costs / additional rent due to building efficiencies in new buildings.

Calgary



7.0% 7






Top 3 challenges for law firms1. Tight vacancy in Class A/AA and Trophy space.2. Parking costs and availability in the CBD.3. CBD traffic congestion.

Top 3 opportunities for law firms1. Large availability of discounted sublease space.2. High levels of AA inventory coming on stream in 2017.3. Reducing overall square foot requirements as employees work increasingly from home.

Blakes 888-3rd Sreet. SW 80,000 s.f. Renewal


OUTLOOK



Locational preference: The large majority of law firms in Greater Vancouver are located in the central business district. Of the 12 firms that occupy over 50,000 square feet in this market most have West Georgia or Burrard Street addresses, with four of these firms located on West Georgia Street and another four occupying space on Burrard Street. The current development cycle will result in some relocations within the downtown core but major law firms in Vancouver will refrain from relocating to peripheral submarkets such as Yaletown and the Broadway Corridor. Two prominent firms have committed to space in new buildings: Bull Housser pre-leased 67,000 square feet in Telus Garden at 520 West Georgia Street and McCarthy Tetrault will occupy 82,000 square feet in 745 Thurlow. Although both are located in the central business district they are slightly outside of what we know as the heart of the core business district. Several other prominent law firms considered new towers but most opted for early renewals in their existing premises, indicating that the current composition of law firms in the market will remain relatively unchanged after the new buildings are completed in 2014 and 2015.

Law firms have been one of the most active industries over the last year and several have made significant long-term commitments. The overwhelming trend in the wake of pre-lease commitments by McCarthy Tetrault in late 2011 and Bull Housser in 2012 has been for firms to renew in their current premises, often well in advance of their lease expiry date. The recent sizeable CBD developments, the first in over a decade, will be ready for occupancy in 2014-2015. Although approximately 1.7 million square feet is currently under construction, large law firms will soon have limited relocation options. Leasing commitments to new construction have been significant, leaving very few large contiguous blocks of space available. Those firms that have 2015 and 2016 lease expiries will have to focus either on existing buildings or wait until the next wave of construction for large block opportunities. We anticipate the CBD market to remain fairly active, thereby creating good leverage for firms considering renewal or relocation to new or existing buildings. Smaller firms may not benefit as much as large firms in terms of leveraging new construction but the backfill vacancies caused by the flight or move to new construction in 2015/16 should lead to tremendous leasing opportunity and value in terms of both rate and allowance levels.

Vancouver


Number of law firms occupying >50,000 s.f. in the market

13.5% 12




Average % rent discount for negotiated rent 13.0%


Top 3 challenges for law firms1. Firms considering a relocation are faced with very few multi-floor Class A options in the downtown core.2. Although 1.7 million square feet of CBD office space is currently under construction, these towers are over 60.0 percent pre-leased and large block options are now limited.3. If proposed developments don’t get built in the next five or six years as planned, firms that don’t act before the new supply arrives in 2014-2015 may be faced with a

lack of relocation options.Top 3 opportunities for law firms1. Pre-leasing activity in new developments has created some large Class A backfill opportunities in a market that has very few full floor vacancies.2. Due to the successful pre-leasing of towers currently under construction, several more have been proposed that will provide sought after relocation options in 2017

and beyond.3. Firms with lease expiries beyond 2015 will be able to negotiate their next deal with the benefit of at least a 13.0 percent increase in Class A inventory following the completion

of the first wave of development.

Heenan Blaikie 1055 West Hastings Street27,000 s.f. Renewal

Stikeman Elliott 666 Burrard Street 34,000 s.f. Renewal

Alexander Holburn 700 West Georgia Street41,000 s.f. Relocation



OUTLOOK

Locational preference: Most law firms in Toronto are located in the central business district. All but one of the 24 firms occupying greater than 50,000 square feet in downtown Toronto, and 67.0 percent of all downtown firms, are located in the Financial Core submarket. Options exist for law firms in both existing and new developments, however new developments on the fringe of the downtown market have yet to attract many large firms. Firms willing to look to areas outside of the financial core will have the opportunity to obtain quality space at less expensive rates in the next few years as construction is delivered.

Toronto law firm space requirements have remained stable in 2013, but are expected to experience a modest decline over the next few years as major firms consolidate their growth, adopt more efficient uses of space, and as senior partners retire. Law firm leasing activity is expected to decrease as well, as most of the large firms have recently renewed or relocated. With a large amount of new construction due to be delivered in 2014 and many of the major firms having recently been active in the market, some relief will be provided for tenants. More options to leverage landlords and obtain favourable lease terms will be presented, especially in the south downtown submarket where over 2.3 million square feet of construction is underway.

Although downtown Toronto continues to experience slow leasing activity both from law firms and the rest of the market, occupancy costs continue to rise as demand for high-quality space persists. The Financial Core submarket provides firms with close proximity to clients, courthouses, and public transportation, as well as the prestige of being located on or near Bay Street, and therefore major firms are willing to pay the premium to be located in this desirable area.

Toronto

Percent of Class A market occupied by law firms


10.4% 24






Top 3 challenges for law firms1. Although availability has risen, asking rates continue to rise in the Class A and AAA buildings in financial core, and new construction will likely keep net rental

rates high.2. Law firms are looking for ways to reduce square footage per employee as the efficient use of space facilitates the attraction and retention of talent.

Top 3 opportunities for law firms1. With over 5.0 million square feet of construction underway in downtown Toronto, firms will have the opportunity to upgrade their space.2. As new construction is delivered over the next few years, firms will benefit from increased leverage and inducements.3. Increases in sublet availability have created additional short-term options for firms to find quality space at cost-effective rates.

Ridout & Maybee 250 University Avenue 20,713 s.f. New lease

Miller Thomson 40 King Street West 100,000 s.f. Renewal

Borden Ladner Gervais 22 Adelaide Street West 166,796 s.f. New lease


OUTLOOK



Locational preference: The large majority of law firms in Greater Vancouver are located in the central business district. Of the 12 firms that occupy over 50,000 square feet in this market most have West Georgia or Burrard Street addresses, with four of these firms located on West Georgia Street and another four occupying space on Burrard Street. The current development cycle will result in some relocations within the downtown core but major law firms in Vancouver will refrain from relocating to peripheral submarkets such as Yaletown and the Broadway Corridor. Two prominent firms have committed to space in new buildings: Bull Housser pre-leased 67,000 square feet in Telus Garden at 520 West Georgia Street and McCarthy Tetrault will occupy 82,000 square feet in 745 Thurlow. Although both are located in the central business district they are slightly outside of what we know as the heart of the core business district. Several other prominent law firms considered new towers but most opted for early renewals in their existing premises, indicating that the current composition of law firms in the market will remain relatively unchanged after the new buildings are completed in 2014 and 2015.

Law firms have been one of the most active industries over the last year and several have made significant long-term commitments. The overwhelming trend in the wake of pre-lease commitments by McCarthy Tetrault in late 2011 and Bull Housser in 2012 has been for firms to renew in their current premises, often well in advance of their lease expiry date. The recent sizeable CBD developments, the first in over a decade, will be ready for occupancy in 2014-2015. Although approximately 1.7 million square feet is currently under construction, large law firms will soon have limited relocation options. Leasing commitments to new construction have been significant, leaving very few large contiguous blocks of space available. Those firms that have 2015 and 2016 lease expiries will have to focus either on existing buildings or wait until the next wave of construction for large block opportunities. We anticipate the CBD market to remain fairly active,

thereby creating good leverage for firms considering renewal or relocation to new or existing buildings. Smaller firms may not benefit as much as large firms in terms of leveraging new construction but the backfill vacancies caused by the flight or move to new construction in 2015/16 should lead to tremendous leasing opportunity and value in terms of both rate and allowance levels.

Vancouver


Number of law firms occupying >50,000 s.f. in the market

13.5% 12






Top 3 challenges for law firms1. Firms considering a relocation are faced with very few multi-floor Class A options in the downtown core.2. Although 1.7 million square feet of CBD office space is currently under construction, these towers are over 60.0 percent pre-leased and large block options are now limited.3. If proposed developments don’t get built in the next five or six years as planned, firms that don’t act before the new supply arrives in 2014-2015 may be faced with a

lack of relocation options.Top 3 opportunities for law firms1. Pre-leasing activity in new developments has created some large Class A backfill opportunities in a market that has very few full floor vacancies.2. Due to the successful pre-leasing of towers currently under construction, several more have been proposed that will provide sought after relocation options in 2017

and beyond.3. Firms with lease expiries beyond 2015 will be able to negotiate their next deal with the benefit of at least a 13.0 percent increase in Class A inventory following the completion

of the first wave of development.

Heenan Blaikie 1055 West Hastings Street 27,000 s.f. Renewal

Stikeman Elliott 666 Burrard Street 34,000 s.f. Renewal

Alexander Holburn 700 West Georgia Street 41,000 s.f. Relocation



OUTLOOK

Locational preference: Most law firms in Toronto are located in the central business district. All but one of the 24 firms occupying greater than 50,000 square feet in downtown Toronto, and 67.0 percent of all downtown firms, are located in the Financial Core submarket. Options exist for law firms in both existing and new developments, however new developments on the fringe of the downtown market have yet to attract many large firms. Firms willing to look to areas outside of the financial core will have the opportunity to obtain quality space at less expensive rates in the next few years as construction is delivered.

Toronto law firm space requirements have remained stable in 2013, but are expected to experience a modest decline over the next few years as major firms consolidate their growth, adopt more efficient uses of space, and as senior partners retire. Law firm leasing activity is expected to decrease as well, as most of the large firms have recently renewed or relocated. With a large amount of new construction due to be delivered in 2014 and many of the major firms having recently been active in the market, some relief will be provided for tenants. More options to leverage landlords and obtain favourable lease terms will be presented, especially in the south downtown submarket where over 2.3 million square feet of construction is underway.

Although downtown Toronto continues to experience slow leasing activity both from law firms and the rest of the market, occupancy costs continue to rise as demand for high-quality space persists. The Financial Core submarket provides firms with close proximity to clients, courthouses, and public transportation, as well as the prestige of being located on or near Bay Street, and therefore major firms are willing to pay the premium to be located in this desirable area.

Toronto

Percent of Class A market occupied by law firms


10.4% 24






Top 3 challenges for law firms1. Although availability has risen, asking rates continue to rise in the Class A and AAA buildings in financial core, and new construction will likely keep net rental

rates high.2. Law firms are looking for ways to reduce square footage per employee as the efficient use of space facilitates the attraction and retention of talent.

Top 3 opportunities for law firms1. With over 5.0 million square feet of construction underway in downtown Toronto, firms will have the opportunity to upgrade their space.2. As new construction is delivered over the next few years, firms will benefit from increased leverage and inducements.3. Increases in sublet availability have created additional short-term options for firms to find quality space at cost-effective rates.

Ridout & Maybee 250 University Avenue20,713 s.f. New lease

Miller Thomson 40 King Street West100,000 s.f. Renewal

Borden Ladner Gervais 22 Adelaide Street West 166,796 s.f. New lease


OUTLOOK



Locational preference: Most foreign law firms are located in the CBD, particularly in China Central Place, China World, Kerry Centre and Yintai. Local firms tend to be more dispersed, with offices in the CBD and Dongcheng District as well as Finance Street. With an average city-wide vacancy rate of below 5.0 percent, options in established locations are limited. As such, in the short and medium term, firms looking to lease space in Beijing may be forced to explore decentralized options. In the longer term, as projects are completed in the CBD core expansion area, more space may become available in this prime submarket.

Demand from international law firms was relatively subdued in the first half of 2013. Citing reasons such as uncertainty in the domestic and global economies and a lack of M&A and IPO work, a number of big-name firms have been reviewing their space requirements in recent months. Several firms have already handed space back to the market and further downsizing activities are expected in the remainder of the year. Nevertheless, several leasing deals were closed in 1H13; King & Wood Mallesons leased 4,400 sqm in WFC as part of an expansion deal; Prologis Law leased around 520 sqm in Yintai and Grandall leased around 200 sqm in Taikang International Centre.

Despite a relative slowdown in demand in recent quarters, particularly from the professional services sector, net absorption topped 200,000 sqm in 1H13. However, net absorption in pre-existing buildings (not including self-use new completions) was recorded at just over 80,000 sqm; significantly below the 10-year average. As 2010 was a record year for net absorption in Beijing, many leases are set to expire in 2013 (lease terms typically run for three years). Facing potential vacancy pressure, a number of landlords have become increasingly flexible in rental negotiations and rents contracted by 2.4 percent during 1H13. Rental decline was more pronounced in the CBD, where rents fell by 5.3 percent year-to-date; reflecting growing tenant resistance to some of the highest rents in Beijing and a high concentration of firms engaged in the struggling professional services sector.

Beijing

Percent of market occupied by law firms

Number of law firms occupying > 5,000 sq m in the market

1.8% 5


Prime rents (RMB per sq m per month) $380-430

Grade A vacancy rate overall 4.4%

Overal vacancy rate 4.6%

Equivelant U.S. rent (per square foot per year) $69.00 - $78.00

Top 3 challenges for law firms1. Very limited new supply.2. Rising costs.3. Some owners are inflexible or do not honor the leases signed.

Top 3 opportunities for law firms1. Established buildings may have some space opportunities.2. Landlords are offering more flexible terms for tenants with the right profile.3. Some international law firms are still looking to enter Beijing.

Grandall Law Firm No 38 North Road East Third Ring 200 sq m New lease

King & Wood Mallesons 1 Dongsanhuan Zhonglu 4,400 sq m Expansion

Kirkland & Ellis 1 Jianguomen Wai 5,600 sq m New lease



OUTLOOK

Asia Pacific


Locational preference: The major law firms in Melbourne are located in the CBD. Many firms prefer to locate in the western end of the city close to the courts precinct, with premium and Grade-A buildings on Collins Street, Bourke Street and William Street accommodating many legal firms. This is considered a prestigious part of the city with many banking and finance firms also located there. Both areas are well served by trains, trams and retail amenities. Despite Melbourne’s CBD extending into the Docklands and Southbank precincts, the legal fraternity has yet to embrace these locations. The Melbourne CBD market is experiencing reduced overall demand from office occupiers due to economic conditions and the need for most organizations to reduce cost. Recently completed buildings along Collins Street and several under construction for completion in 12 - 24 months will provide good opportunities for the legal sector. These developments will feature premium services, environmental sustainability and large floor plates in excess of 1,500 square meters. Leasing incentives have risen substantially to attract new commitments particularly to assist with high costs of new fit-outs. These new buildings and existing back-fill opportunities in premium buildings popular with top and mid-tier legal firms should provide tenant-favourable market conditions into early 2016. Many firms with expiries from late 2015 to early 2016 are already in the market considering their options.

The Melbourne market has seen limited pre-commitments to new development projects by the legal sector since the 1990s, with renewal or leasing of back-fill space in existing buildings being preferred (mainly to avoid development risks). Due to their size, most law firms are not sufficiently large to underpin a new development. An exception to this trend being Corrs Chambers Westgarth’s 93,000-square-foot commitment to 567 Collins Street in 2012, which enabled the developer to package another organization’s pre-commitment and commence construction for a 2015 completion. Full coverage of any development risk was a feature of Corr’s agreement for lease. 567 Collins Street will feature large typical floors over 20,000 square feet, Port Phillip Bay and city views, premium services as well as client and staff amenities. Corrs will relocate from five floors at 600 Bourke Street, thus freeing up good quality space on the high-rise floors. These buildings along with other new developments such as 171 and 150 Collins Street are widening the opportunities for legal firms for new leases commencing up until early 2016. Several firms with expiries within the next three years are currently in the market and will benefit from either agreeing to attractive medium- to long-term renewals for cost saving or the ability to relocate/re-engineer their workplaces on larger contiguous floors, enabling greater efficiency for the long term using the current higher levels of incentive to cover fit-out costs.

Melbourne



4.4% 18


Prime rents (A$ per sq m per annum) 531 (Gross rents)

Description of available incentives 28% based on first year’s net rent over a 10-year term

Grade A vacancy rate 8.7%

Overall vacancy rate 10.0%


Top 3 challenges for law firms1. All mid-tier and the majority of top-tier firms are not large enough to underpin new development therefore they are generally confined to existing stock although

recent Corrs pre-commitment runs contrary to this trend.2. Largest firms generally prefer premium space whilst new space being delivered is mostly A-Grade.3. Matching long term lease commitment to changing workplace drivers continues to be challenging.Top 3 opportunities for law firms1. Significant incentives available to firms prepared to move can almost fully fund a new fit out.2. Firms seeking to remain in their current space can take advantage of current market conditions if they act early, capitalizing on landlords being eager to minimize

vacancy and maintain income.3. Implementation of new workplace philosophy (e.g. open workstations, shared offices) can deliver costs savings and efficiency.

Russell Kennedy 469 LaTrobe Street 6,100 s.f. Renewal

Corrs Chambers Westgarth 567 Collins Street 93,600 s.f. New Development Pre-commitment



Macpherson & Kelley 114 William Street 1,900 s.f. Renewal

OUTLOOK

Deacons Alexandra House 65,000 s.f. Renewal

Cleary Gottleib Hysan Place 16,000 s.f. New lease

Locational preference: The majority of law firms are located in the ‘Central’ market within Hong Kong. Law firms are especially attracted to core Central building locations, notably within Hong Kong Land’s (largest Central landlord) portfolio. Due to an acute lack of supply and development pipeline in Central, law firms will increasingly face rent pressure in line with supply / demand fundamentals, if they wish to remain in Central. As development, infrastructure projects and cost savings make locations such as Causeway Bay and Hong Kong East more attractive to banking and finance tenants, this will affect the services sector i.e. law firms that cluster around this group.

Law firms with a conservative budget continue to take up premises in buildings located in Central’s periphery, where rents are more cost effective. The legal sector has been actively growing over the past 24 months with new entrants and existing firms growing considerably. Operating costs for Hong Kong law firms are increasing as real estate overheads inflate alongside employment costs. At the same time there has been a significant drop off in IPO and corporate work. For those firms seeking to relocate, office options are limited as vacancy is still low, and the development pipeline remains constrained until at least 2016. Hong Kong law firms are first looking to densification as a natural cost saver, as traditional space utilization has changed little in Hong Kong, comparative to other markets. As there is little confirmed new supply in Central, it is likely that the high-end service sector will look further East on Hong Kong Island to less costly districts that can satisfy business requirements. We see both Wanchai and Causeway Bay as natural locations to fit this trend in the short term. Rents in Central are high but have softened in recent quarters. Limited rental growth is expected for the remainder of 2013. Firms would be prudent to position themselves in the market in Q4 2013 - Q1 2014, if possible, before rental growth begins to accelerate again.

Hong Kong

Percent of Central market occupied by law firms


11.0% 5


Prime rents (HK$ per sq ft) $90-$140

Description of available incentives 2 to 3 months rent free


Overall Central vacancy rate 4.5%


Top 3 challenges for law firms1. Medium term rental increases in Central. 2. Lack of supply of Grade A buildings within Central. 3. Finding sub or replacement tenants for surplus space.

Top 3 opportunities for law firms1. Smaller law firms can benefit from concession packages from existing law firms looking to dispose of surplus space.2. Subdistrict landlords’ appetite to attract law firms from Central into their portfolios.3. Short term demand lag providing immediate opportunities to lock in protected long term deals.



OUTLOOK


Locational preference: The majority of law firms in Singapore are located in the main Central Business District to be close to their client base, largely concentrated in the prime office space in the historical heart of Raffles Place. The trend over the last three to four years is for the larger international and domestic law firms to relocate their operations to the new developments in Marina Bay. With typical floor plates in the Raffles Place ranging from 8,000 - 15,000 square feet the newer downtown developments can offer large and more efficient floor plates of approximately 25,000 - 30,000 square feet.

Activity in the legal sector is currently driven by a number of multinational law firms expanding with new offices setting up in Singapore, moving out of temporary (serviced offices) into good quality grade buildings in Raffles Place and the new Marina Bay CBD. Future demand is expected to be driven by both local growth and multinational firms looking to Asia to increase revenue and save cost. The continued success of the government to position Singapore as a location in which to house regional headquarters amid the lack of supply in Hong Kong will also bolster demand.

Singapore’s fundamentals are strong but uncertainty in the global economy is still likely to constrain overall leasing demand in the short term. Singapore has become a regional hub for arbitration as a result of the government’s effort to develop the arbitration industry, which has nearly tripled over the last three years. Another growth area is intellectual property (IP) with Singapore providing a strong legislative framework. Net take up of office space (additional office space leased) was strong island-wide from 2010 to 2012, with negative 2.4 million square feet in 2010, 1.8 million in 2011 and 1.9 million in 2012 against a 20-year average of approximately 1.5 million square feet per annum (all grades). Projected full-year net take-up for 2013 is expected to be less than 2012 due to occupier caution.

The development pipeline remains relatively tight through 2014 with new supply only coming on line in the 4Q 2014. For those larger firms seeking to relocate and upgrade their offices there are likely to be more opportunities in new developments completing in 2016. Landlords in existing buildings are likely to remain firm on their asking rents in the short term, in view of generally healthy occupancy levels and limited supply going forward. Rents are hence likely to see a moderate increase in the second half of 2013 and 2014. With limited pre-leasing activity in the new developments, rents are likely to be relatively competitive, with little or no premium for new construction.

Singapore

Percent of Grade A offce in CBD occupied by law firms


4.0% 4


Prime rents (SGD $ per sq ft) $8.50-$10.50

Description of available incentives Typically through rent free during the initial period of the lease.

Island-wide Grade A vacancy rate 4.8%

CBD Grade A vacancy rate 5.5%


Top 3 challenges for law firms1. Large number of new firms opening in Singapore creating pressure on the talent pool.2. Limited number of large continuous blocks of space available in 2014.3. Potential for rental increases as leasing demand increases through 2013, supported by cumulative take up of the smaller space occupiers.

Top 3 opportunities for law firms1. Longer term, vacancy rates in the new Prime Grade A buildings are expected to increase over the next two years on the back of new supply. 2. Opportunities for tenants looking to sublease have created additional space options.3. Legal and business communities across Asia are increasingly promoting the city-state as an ideal, one-stop venue for international commercial arbitration.

Reed Smith Marina Bay Finacial Centre Tower III 10,000 s.f. New lease

Sidley Austin 6 Battery 12,000 s.f. Expansion

Herbert Smith Freehills Singapore Land Tower 14,000 s.f. Renewal



OUTLOOK

Locational preference: Most foreign law firms are located in the CBD, particularly in the financial district in Lujiazui, Pudong and West Nanjing Road in Puxi. Local firms tend to be more dispersed, with offices in the CBD. However the three biggest domestic law firms have now relocated to Premium Grade A offices.

Over the past year, law firms have slowed down their expansion plans in Shanghai as economic uncertainty has contributed to a slower growth environment. While overall leasing demand has been subdued, a small percentage of law firms, especially domestic firms, have remained active in the Grade A and Premium markets. Many domestic law firms are now looking to upgrade their office space from lower-quality buildings in an effort to improve their image and focus more on their client-facing services.

Law firms have traditionally preferred to locate in the core-CBD areas of Puxi and Pudong, which allows them to be close to the financial sector firms and major MNCs, which are their primary clients. In the remainder of 2012 and 2013, space in this core-CBD area will be limited, meaning that law firms looking to expand may be hard-pressed to find adequate lettable supply.

As economic stimulus measures slowly improve sentiment and the basic need for legal services grows, we expect that law firms will resume plans to expand or upgrade over the next 12 months.

Shanghai


3


Prime rents (RMB per sq m per month) $267

Prime Grade A rents (RMB per sq m per month) $314

Overall Grade A vacancy rate 13.1%

CBD Grade A vacancy rate 8.6%


Top 3 challenges for law firms1. Low vacancy in existing Premium Grade A buildings.2. Pudong (Lujiazui) has limited Premium Grade A space from now to 2015.3. Right-sizing the amount of space.

Top 3 opportunities for law firms1. A large amount of stock to be developed over the next five years but predominantly decentralized / fringe Grade A.2. Legal sector relatively quiet and firms renewing if possible to save on cost.3. Leverage in negotiating between two hot spots for law firms in the CBD, namely Lujiazui and West Nanjing Road.

Confidential SWFC 2,000 s.f. Renewal

Confidential Mirae Asset 2,500 s.f. Renewal

Confidential Jin Mao Tower 3,500 s.f. Renewal



OUTLOOK


Locational preference: The legal sector in Tokyo shadows the financial sector and major firms are located in and around large banking and financial institutions. The favoured locations are Chiyoda Ku and Minato Ku with popular locations being Marunouchi and Otemachi (average Grade A rent - JPY 38,468 per tsubo per month Inc CAM) Akasaka and Roppongi (average Grade A Rent - JPY 33,976 per tsubo per month Inc CAM).

The first half of 2013 has seen a continuation in the trend of right-sizing across many industry sectors that was common in 2012. This was particularly prevalent in the financial sector however some of the larger legal firms in Tokyo have also looked to hand back space. With a strong supply pipeline (particularly in 2014 and 2016), landlords, recognizing the future competition have, in many cases offered to reduce tenants rentals on renewal / re-contract to retain tenants. As the cost of fitting out a law firm office in Tokyo rates as some of the highest in the world, many law firms have favoured these deals in a weak economic climate, whilst in some cases exercising their rights to partially terminate a portion of their space to save costs. A notable exception was the Japanese law firm Anderson Mori, who relocated from Izumi Garden Tower to Akasaka K Tower in early 2013.

The average Tokyo Grade A stock remains relatively old, albeit with many central areas regenerating over the last 10 years. For the majority of tenants this represents an opportunity to upgrade in quality and enjoy large efficient floor plates, increasing their efficiency and saving costs. The legal industry however favours perimeter offices and the trend for larger, deeper and more efficient floor plates has negatively impacted their layout and floor design with fewer external offices per square meter and less efficient space utilization. Average Grade A rents in the Tokyo CBD (5-kus) stood at JPY 31,490 per tsubo/month (gross rents including CAM) in the second quarter, a modest increase of 1.4 percent over year-end 2012. Going forward, moderate rental growth is expected to continue in the Grade-A sector for the next 12 months, as developers with large projects and/or landlords who are concerned about losing tenants in existing buildings should continue to offer relatively generous incentives. This provides a market opportunity for law firms to receive favourable offers from landlords, in order to save costs at their current space under renewal/re-contract.

Tokyo



1.5% 5


Prime rents (Local currency per s.f. per annum) $11,612

Description of available incentives 6 months rent-free




Top 3 challenges for law firms1. Increasing rents across the Grade A market.2. Rightsizing the amount of space.3. Development pipeline of large floor plate properties typically unpopular with the legal sector.

Top 3 opportunities for law firms1. Record Grade A supply in 2016 offering a variety of options.2. Grade A premium rents remains low offering a chance to upgrade.3. Increasing vacancies in older high-quality Grade A properties.

UK Law firm 2-1-1 Marunouchi, Chiyoda-ku 20,229 s.f. Renewal

Anderson Mori Akasaka K Tower 100,000 s.f. Relocation


OUTLOOK


Locational preference: Whilst top-tier law firms have traditionally been in high-rise towers in the financial heart of the CBD, the most recent relocations and commitments have gone against this trend. Herbert Smith Freehills (215,000 s.f.) relocated last month to a new premium grade tower in the midtown precinct. Ashurst (129,000 s.f.) will move to a refurbished heritage bank building and Gilbert & Tobin (100,000 s.f.) have now committed to Lend Lease’s Barangaroo complex on the western side of Sydney.

Sydney is currently experiencing its most challenging period for landlords in 20 years. The next one to two years are anticipated to be relatively flat in terms of net absorption and rental growth. The handful of law firm transactions that have occurred so far this year have been brought about by pending lease expirations. However, almost all of the large- and mid-sized law firms have seen contraction with most looking to sublet part of their premises. Such subletting has been difficult given the generally subdued market conditions and the highly cellularized fit-out of most law firms being less suitable to the majority of occupiers. The contraction in space utilized by law firms is mainly due to factors such as a general reduction in corporate/M&A work, a focus on higher profit-producing work, as well as competition from a number of new arrivals/start-ups in the Australian market (e.g. established U.S. law firms Seyfarth Shaw and Quinn Emanuel). A number of new development options are available from mid-2015 but at a rental uplift of some 15.0 percent reflecting the economic rental needed to justify the development costs.

Sydney



4.4% 18


Prime rents (A$ per sq m per annum) 955 (Gross rents)

Description of available incentives 30% of the gross rental based on first year’s rental multiplied by the term in years




Top 3 challenges for law firms1. Whether to fully downsize to reflect current workload or maintain some ‘float’ to anticipate an upturn.2. Whether to maintain a traditional way of working or consider placing some lawyers in workstations, or have lawyers sharing offices.3. Mid-tier firms targeting partners in larger firms.

Top 3 opportunities for law firms1. Using current market conditions to lock-in good long term deals.2. Building in very flexible expansion / contraction terms in new leases.3. Continuing the trend of moving away from traditional high-rent towers.

DLA Piper 1 Martin Place 60,000 s.f.

Gilbert & Tobin Barangaroo 94,000 s.f.



OUTLOOK


Locational preference: The largest international and domestic law firms are generally located in the Zuidas district. The Zuidas district is home to law firms including Baker & McKenzie, Brauw Blackstone Westbroek, Loyens & Loeff among others, with exception for Allen & Overy and Lexence which are located in adjacent South district. The Zuidas can be characterized as a multi-functional location with good accessibility by road and public transport. Many smaller law firms are located in the city centre of Amsterdam especially around the canals at Herengracht and Keizersgracht. The buildings here have a modern classical image which suits the law firm occupier.

Law firm activity remains relatively limited in Amsterdam, with overall occupier take up continuing to decline. In the Amsterdam market, competition for office space in the popular submarket Zuidas decreased in 2012, down 29.0 percent on 2011. Demand from law firms has been subdued over the same period. Besides the focus on cost containment, law firms are looking to adapt the trends of flexible working, which will result in a declining demand for expansion of their office space. When combined with other pressures including declining revenues, some law firms are seeing an increase in surplus office space. Law firms are focusing more to reduce their real estate costs, resulting in earlier renewal of their lease contracts or subleasing surplus supply. New office developments are starting this year, with law firm Stibbe moving within the Zuidas 500 meters from their existing location. Another law firm is in final stages of negotiating to relocate their offices to a new office building. The overall market of Amsterdam is still characterised by a large amount of oversupply, particularly in more peripheral areas where choice is inflated by less suitable accommodation and a lack of alternative functions. Although over the last years, the municipality agreed on several office conversions to hotels and (student) apartments outside of the city core. Due to the absence of new completions the choice of Grade A space decreased to 4.8 percent. Despite the overall high vacancy rate in Amsterdam, declining Grade A vacancy has led some developers in the Zuidas district to pick up their ambitious development plans from before the economic downturn, which creates the case for new development starts in Zuidas. To that end, refurbishment of several office buildings is planned in the upcoming years.

Amsterdam



11.7% 11


Prime rent (sq m per annum) €335

Description of available incentives

9 to 15 months rent-free on a standard lease term




Top 3 challenges for law firms1. Limited new construction over the next three years will force law firms with near-term lease expiries to renew in place or consider second-generation space.2. High fit out costs will continue to influence relocation decisions.3. Adapting to emerging trends in flexible working.

Top 3 opportunities for law firms1. Willingness for landlords to facilitate early renewal of contracts.2. Reducing real estate costs by temporarily subleasing surplus supply.3. Opportunities to drive efficiency and productivity in the workplace.

Baker & McKenzie Gustav Mahlerlaan 11,029 sq m lfa Renewal

Stibbe Beethovenplein 13,400 sq m lfa Relocation


2013 20152014 2016 2017

Houthoff Buruma Gustav Mahlerlaan 9,320 sq m Renewal

OUTLOOK


EMEA


Locational preference: Dubai. Most of the international law firms are located in the DIFC (Dubai International Financial Centre) or in nearby locations within the CBD such as Emaar Sauare and along Sheik Zayed Rd. While DIFC is a freezone, these other locations are on shore locations and therefore require firms to have a local sponsor.

Abu Dhabi. The recently delivered Sowwah Square had become the location of choice for international law firms in Abu Dhabi. The future of this project for law firms is however now less certain given the recent designation of the entire Al Maryah Island (including Sowwah Square) as a financial free zone to be known as Global Marketplace - Abu Dhabi. Law firms established with local partners are not currently permitted to lease space on Al Maryah Island. Fortunately, there is an increasing supply of Grade A office space now available in other onshore locations within Abu Dhabi.

The increased availability of new Grade A office in both Dubai and Abu Dhabi over the past few years has benefitted law firms by providing the opportunity to upgrade to a single, high-quality building, often without increasing their real estate occupancy costs. With many of the law firms taking advantage of this window of opportunity in 2011 and 2012, there is currently less active demand from this sector in the market as many firms are now committed on leases for a significant period. While some law firms are still actively seeking new space (usually for consolidation from multiple, older premises), others are now in the position of subleasing surplus space within their existing tenancies. There remains a clear preference among international legal firms for top-quality space in both Dubai and Abu Dhabi, while smaller local practices have taken space in secondary locations. Proximity to clients remains the major locational driver of legal firms in the UAE. In Dubai the major focus is on serving clients in the financial services and trading sectors of the economy. In Abu Dhabi, most of the law firms are serving government related clients (including sovereign wealth funds) or the energy sector. The growth of government related business such as Etisalat (telecoms) and Etihad (airline) has also generated additional work for lawyers in Abu Dhabi. Most law firms seek larger space in Dubai than in Abu Dhabi, with typical requirements of 1,000 to 2,000 square meters in Dubai, compared to 250 to 500 square meters in Abu Dhabi.

Dubai & Abu Dhabi

Average percent of market occupied by law firms


5-10% 2


Prime rent (AED per sq m ) Dubai (CBD excluding DIFC) Abu Dhabi (CBD)

2,580 1,800 1,635

Incentives

At least one month rent free for each year of the lease commitment

Grade A CBD vacancy rate (Dubai/Abu Dhabi) 30% / 38%

Equivelant U.S. rent (per square foot per year) Dubai (DIFC) Dubai (Non-DIFC) Abu Dhabi

$65.26 $45.53 $41.35

Top 3 challenges for law firms1. Rental pressures in prime space in single ownership buildings in Dubai.2. Subleasing excess space.3. Opaque service charge structures.

Top 3 opportunities for law firms1. More Grade A space to select from.2. Tenant-favourable conditions (outside of few prime projects).

Shearman & Sterling Ethihad Towers, Abu Dhabi 1,000 sq m Relocation

DLA Piper Standard Chartered Building, Dubai 1,600 sq m Relocation


OUTLOOK


Locational preference: Most law firms, typically those doing business with European institutions and banks tend to be located in the Leopold, Louise and Decentralised South East districts. The Decentralised South East district is also home to large international law firms. At this stage, vacancy is sufficient for space needs of new and existing law firms, however in the Leopold district (the European district) vacancy is declining, creating opportunities in the Decentralised South East where vacancy is structurally high.

Law firm activity increased in 2013, though mainly through renewals of existing leases, with examples including Freshfields Bruckhaus Deringer and Mayer Brown in the Leopold district. Market conditions are in the favour of law firms and in cases where the occupied space is unchanged, lease term renewals are concluded with 10.0 to 20.0 percent reduction for a long-term lease. International law practices, however, tend to optimize their occupation with less space, though the use of open-space is limited so far. Law firm transactions and relocations currently in the pipeline confirm the reduction of office space needs going forward. However there are signs of new market entrants, one such move was Osborne Clarke entering the Brussels market in Q2 2013.

Vacancy remains high in Brussels at 10.6 percent, though declining in the best districts, implying that the market is currently tenant-favourable and expected to remain so in 2014. The downward pressure on rental values observed last year in the Leopold, Pentagon and Louise districts seems to have eased, with a stabilisation of headline rents and on incentives especially for Grade A buildings. The picture is different in the Decentralised district, also an area of focus on law firms, with further downward pressure on rental values, even for recently completed buildings. The limited development pipeline suggests that the Brussels office market would return to landlord favourable from 2016, with plenty of opportunities for law firms in the meantime.

Brussels



2.0% 12


Prime rent (per sq m per year) € 285


10% average rent free on a five -- year term




Top 3 challenges for law firms1. Speculative development is scarce for the next 18 months, high-quality products in the areas favoured by law firms are limited. 2. Reduction of incentives in the best locations, possibly leading to rental increase in 2014. 3. Increased mobility issues in some districts due to higher car traffic.

Top 3 opportunities for law firms1. High vacancy rates in some districts imply more incentives and lower rents. 2. Tenant-favourable market: landlords ready to renegotiate lease terms to retain their existing tenants. 3. Speculative construction activity to restart in the best locations, mainly with green-labeled products.

Mayer Brown Avenue des Arts, 52 1000 Brussels 1,588 sq m Renewal

Field Fisher Waterhouse Boulevard Louis Schmidt, 29 1040 Brussels 2,681 sq m Renewal


2013 20152014 2016 2017

Osborne Clarke Avenue Marnix, 23 1000 Brussels 880 sq m New Lease

OUTLOOK



PRICING AND INCENTIVESOverallPrime rent (sq m per month) €18.50Description of available incentives 7-10%Grade A Vacancy rate N/A


OUTLOOK


OUTLOOK


OUTLOOK


Berlin PRICING AND INCENTIVES

OverallPrime rent (sq m per month) €22.00Description of available incentives 0-7%Grade A Vacancy rate 1.5%Equivelant U.S. rent (per square foot per year) $31.88

PRICING AND INCENTIVESOverallPrime rent (sq m per month) €22.00Description of available incentives 6-8%Grade A Vacancy rate N/AEquivelant U.S. rent (per square foot per year) $31.88

OUTLOOK


Cologne

OUTLOOK


Hamburg PRICING AND INCENTIVES


PRICING AND INCENTIVESOverallPrime rent (sq m per month) €31.00Description of available incentives 3-8%Grade A Vacancy rate 3.0%Equivelant U.S. rent (per square foot per year) $44.92

Munich

Düsseldorf PRICING AND INCENTIVES


PRICING AND INCENTIVESOverallPrime rent (sq m per month) €34.00Description of available incentives 10-17%Grade A Vacancy rate 4.5%Equivelant U.S. rent (per square foot per year) $49.27

Frankfurt

Stuttgart

OUTLOOK


OUTLOOK


Locational preference: Law firms are concentrated in prime CBD locations such as near the Alte Opera in Frankfurt, the city centre districts of Hamburg and Munich, the CBD or Hafen in Düsseldorf, and in Mitte 1A or Potsdamer Platz in Berlin.

Law firms in Germany continue to grow in terms of revenues and headcount, although the outlook is less positive than before. Around 80.0 percent of the top 50 law firms by revenue showed revenue growth over 2012, but the 2.6 percent overall growth was half that of the previous year. German firms fared particularly well. At the beginning of 2013, the number of licensed lawyers in Germany also reached a new high of almost 161,000, 1.6 percent more than in the previous year.

Growth, but more restrained growth, has been evidenced in leasing activity. Law firms leased around 150,000 square meters of office space in the Big 7 (Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart) in each of the last two years. Only 45,000 square meters of new offices was leased in the first half of 2013, a drop of 36.0 percent compared to the same period of last year. This reflects the less positive sentiment that firms have for their businesses. A continuing drop in availability and new construction of prime buildings, as well as rental growth, is having an impact on decisions. For example, while vacancy in Frankfurt appears high, there are in reality only a few top options that meet the demands of law firms. New premium buildings coming to the market tend to spur relocations, but there is relatively little new construction underway. With fewer good options and rising rents, many companies are choosing to stay put and renegotiate terms.

Changing workplace concepts have had minimal effect on demand as law firms in Germany show little evidence of changing their traditional private office designs. Some larger firms have had marginal decreases in space moving from legacy fit-outs in older buildings and into more efficient new buildings.

Even though law firms are expected to be more active in the H2 2013, we expect lower total take-up in the full year compared to 2012. Law firms currently have potential requirements for around 165,000 square meters of office space, and remain sought-after tenants in the prime office market. A large share of this is in Frankfurt and Munich, which together account for almost half of the space requirements for law firms.

Germany

Top 3 challenges for law firms1. Supply of space in ‘right’ buildings for law firms (center city, prime quality, suitable floorplate for law firm use) becoming even more scarce. Most of the vacancy in

cities like Frankfurt does not meet key law firm criteria. 2. Speculative development remains scarce. Large users (over 5,000 sqm) therefore need to plan at least two years in advance and usually focus on new

developments. These generally demand a fixed 10-year commitment.3. Managing impact of lateral hires, which can trigger a need to drop or add significant space on a very short timeline as teams come or go.Top 3 opportunities for law firms1. Good opportunity to renegotiate terms on existing leases before rents rise further, but only where offices would suit for next five to seven years.2. Capital allowances and/or landlord-provided fit outs are available and open for negotiation. Law firms should get the most out of landlord budgets, whether it is

renovation of an existing office or a relocation.3. New development areas in Berlin and Hamburg may offer attractive terms particularly for large, established operations. Firms continue to focus on the prime

submarkets in Dusseldorf, Frankfurt and Munich.

Norton Rose Fulbright TaunusTurm, Frankfurt 4,000 sq m

Müller-Boré und Partner Forum Hirschgarten, Munich 3,000 sq m

Herbert Smith Freehills Bürohaus an der Alten Oper, Frankfurt 2,400 sq m

King & Spalding TaunusTurm, Frankfurt 1,600 sq m

Osborne Clarke Tanzende Türme 1,300 sq m

Linklaters Taunusanlage 8, Frankfurt 8,800 sq m


OUTLOOK



2-7% 60


Locational preference: In Madrid, a significant majority of law firms, regardless of their size, are located in the CBD submarket, specifically on Castellana Street and its borders, toward the east, the Salamanca neighborhood, and on the western side of the axis, the areas of Almagro or Zurbano. Smaller firms are frequently located in mixed-use buildings of residential / offices. As firms become more relevant in their industry, they look for representative buildings to support their marketing strategies and reinforce their “brand image”. Of the top 25 law firms, 96.0 percent are located in or around these areas. In the future, however, law firms with space requirements may be obliged to look for adequate solutions in lower-quality CBD buildings, until top-quality availability increases via refurbishments.

A number of significant international law firms have shown interest in the Madrid market, closing relevant relocation transactions (Linklaters, Perez-Llorca, Hogan Lovells) or renewing former lease conditions (Freshfields, Clifford Chance). Others, like Allen & Overy are still scanning the market, keen to take advantage of good opportunities. Occupiers in Madrid are still cautious, expecting an increase of confidence in their projects success along with the improvement of the general economic environment. Law firms stand out as an industry with one of the most solid levels of confidence in the future of its business, and are one of the most active sectors within the market. Much of the recent activity has focused on improving the location and quality of headquarters, taking advantage of present market conditions. However, the scarcity of good-quality product is becoming a serious challenge to law firms moving forward, aggravated by the restrictions to share location with other firms. High-quality space is becoming very limited, with unit sizes above 2,000 square meters very hard to find for prime space in the CBD. New developments are not expected in the CBD besides eventual refurbishments of old but well-located buildings. Given the lack of newly completed prime product, refurbished buildings are currently proving very attractive to occupiers, and typically experience shorter vacancy periods and lower vacancy rates, attracting higher-quality tenants at higher rents.

Madrid


Percent of law firms compris-ing active tenants in the


3-5% 6




5 to 30 months rent free depending on location.




Top 3 challenges for law firms1. General lack of good quality product in prime area.2. Given the scarcity of high-quality product and the medium to large firms’ preferences for single occupancy, the availability of the kind of product which law firms are

looking for is very limited.3. The tight Grade A market means that excessive delay in the searching and decision making phase may cause a critical loss of options to relocate in a prime location.

Top 3 opportunities for law firms1. Lower rental levels and high incentives in present market conditions allow law firms to relocate in better locations and to improve building quality.2. Current market environment is driving full or partial refurbishment in old but well-located buildings which may increase high quality offer, suitable to law firms.3. Tenant-favourable real estate market conditions gives leverage to occupiers when negotiating rents or rental renewals.

Hogan Lovells Paseo de la Castellana 36-38 4,608 sq m Relocation

Linklaters Calle Almagro 40 5,080 sq m Relocation

Pérez-Llorca Paseo de la Castellana 50 6,434 sq m Relocation


2013 20152014 2016 2017

OUTLOOK


Locational preference: Small to mid-sized law firms, particularly U.S. and international, tend to locate in core city locations, whereas established UK and large international law firms (70,000 square feet plus) tend to locate in peripheral City Fringe locations or Canary Wharf in order to benefit from lower rents and to hedge against significant rental increases at future rent reviews. The arrival of Crossrail in 2018 may lead to a greater focus on the northern half of the City moving forwards.

Challenging market conditions persist in the legal sector, although sentiment is definitely on an upwards trajectory and the latest research (from Legal Week) indicates a third consecutive year of growth in 2012-2013 for the 50 largest firms. There has been improved demand for office space from law firms this year. By the end of August, 17 letting transactions were recorded in the legal sector in the City, totaling 535,477 square feet of floor space. This is already above the three year quarterly average (522,291 s.f.) and 114.0 percent up on the same period one year ago. Year-to-date take-up also exceeds the floor space taken in the whole of 2012 by 8.0 percent (2012 total was 483,831 s.f.).

Overall law firm activity accounted for 11.0 percent of total take-up in the City office market in the first eight months of 2013, which compares to 11.6 percent of overall take-up in the whole of 2012. The two largest transactions in the year-to-date were CMS Cameron McKenna who leased a total of 140,190 square feet at Cannon Place, EC4, at an average rent of £47.50 per square foot p.a.x., as well as Bird & Bird who have taken a pre-let of 136,200 square feet at 12-14 New Fetter Lane, EC4 at an initial rent of £58.80 per square foot.

At the end of August there were 50 active and potential law firm requirements. This compared to 33 from the same period one year ago; however, the total space required is down by 8.0 percent year-on-year as several very large requirements shifted to satisfied. The total outstanding demand currently stands at 1.3 million square feet, implying there is an increase in smaller to medium-size requirements in the market. Of the larger requirements, there were two in the 50,000 to 100,000 square foot bracket and two in the 100,000 to 200,000 square foot bracket.

Looking ahead, activity in the legal sector will be driven by a combination of lease events, obsolescence, increasing occupier confidence and merger activity.

London City



14.0% 54


Prime rent (sq ft per annum) £ 57.00

Description of available incentives 24 months rent free assuming a 10-year lease




Top 3 challenges for law firms1. Potential for rental increases and diminishing incentives due to a number of large lettings and diminishing supply in Grade A buildings.2. Lease renewals: older space is often incompatible with new working styles. The challenge will be to minimize capital expenditure whilst embracing new working

practices. Ultimately relocation may deliver the more viable long-term solution.3. Law firms with larger space requirements will be confronted by a restricted immediate supply of suitable floor plate options in traditional legal locations. The majority

of new supply is either of deep floor plate buildings or in EC3, which is a traditional insurance submarket.Top 3 opportunities for law firms1. Enhance productivity of real estate: portfolio rationalization, space utilization, benchmarking and monitoring of portfolio.2. Occupying ‘enabling space’ which offers opportunities for more mobile working / conferencing facilities, hot desking and working from home.3. Forward planning – preparing for 2019 / 2020 lease expiries by considering pre-let options that could provide the tailor-made real estate opportunities for a modern

day law firm.

Field Fisher Waterhouse Riverbank House, Swan Lane, EC4 7,430 sq m

Bird & Bird 12-14 New Fetter Lane, EC4 12,660 sq m

CMS Cameron McKenna Cannon Place, 78 Cannon Street, EC4 13,020 sq m


OUTLOOK



Locational preference: The majority of law firms in Moscow are located in the city centre along the Kremlin Area, Boulevard Ring and Tverskaya Street. Due to very low pipeline in CBD for the coming years corporates will most likely consider the Moscow City district which is located only 6 kilometers from the Kremlin and represented by high-rising quality buildings.

The legal sector occupies less than 60,000 square meters of office space in Moscow. During the last three years several transactions were concluded in the CBD: new leases of Hogan & Lovells, Akin Gump, King & Spalding; renewals of Noerr, Cleary Gottlieb, Skadden and Clifford Chance; the pre-let by Baker & McKenzie (7,000 sq m) in 2012. The largest deal of H1 2013 was the lease by Dentons (3,600 sq m) in the recently-completed prime office development White Gardens. Since Q2 2011 prime rents have remained flat and vary from US$1,000 to US$1,150 per square meter per year for Trophy assets. Long-term rents are forecast to increase marginally in the CBD submarket due to low future supply and consistent demand from occupiers, which prefer the submarket for its proximity to the Kremlin area and its established business location. Historically, the relocation of law firm offices have been concentrated and limited to the prime segment in city centre. However, in the future, limited availability of new high-quality space in the City Centre would likely lead law firms and other corporate occupiers to reevaluate their strategy and seek out opportunities in the rapidly developing Moscow City business cluster.

Moscow



3% 4


Prime rent (sq m per annum) $1,000-1,150


3 to 6 months rent free period + additional incentives.




Top 3 challenges for law firms1. Due to restrictions on new office construction in the city centre a deficit of new supply is anticipated.2. Rents in prime areas are likely to see modest growth.3. Limited large blocks of space are currently available in prime locations.

Top 3 opportunities for law firms1. Six notable high-quality skyscraper schemes in Moscow City financial district are to be completed by the end of 2015.2. The largest Class A available spaces in CBD are to be found in recently completed buildings: White Gardens Office Center, Aquamarine III and Wall Street.3. Although rental rates for Trophy buildings are expected to rise, such growth should not be as strong as it was in the pre-crisis period, when prime rents increased to

US$1,500 to 1,900 per square meter per year.

Dentons White Gardens, Lesnaya St. 27 3,600 sq m New lease

Clifford Chance Ducat III, Gasheka Ul., 6 3,600 sq m Renewal

Baker & McKenzie White Gardens, Lesnaya St. 27 7000 sq m Pre-lease


2013 20152014 2016 2017

OUTLOOK


Locational preference: The major law firms are located in the Historic Centre, which comprises the very central area of Milan around Piazza Duomo, Piazza Affari, Piazza San Babila and the Fashion quarter surrounding via Montenapoleone, and the CBD. Law firms remain attracted to prime office space in locations which ensure greater proximity to their client base.

The CBD incorporates the former Garibaldi Centrale, to reflect the evolving structure of the city and the importance that the new Porta Nuova develoment is likely to gain among Milan business districts. Offering grade A space in an excellent location with access to the underground, the urban rail network and national and international destinations Porta Nuova was expected to generate interest in law firms. Despite some interest, no deals have been so far closed, given the continued preference for historical buildings in the traditional CBD.

H2 2012 and H1 2013 saw law firms taking up just under 2,500 sq m across only two deals, representing a decline in floor space by approximately 64% on the previous twelve months. The moves have contributed 1.4% of the overall twelve-months take up and were concentrated in the Historic Centre. A number of firms are currently looking to relocate, and are expected to contribute up to 6,000 sq m to the year-end take up.

The sector is still being affected by the uncertain macroeconomic context, translating into unclear market dynamics which make it difficult to assess whether the time is right to move or whether further reductions in rents are yet to come. This in turn induces a more cautious approach in law firms, as they wait to see whether better lease conditions can be achieved; this could well be the case, as the increasing vacancy and weak demand reported in Q2 2013 seems to suggest.

Furthermore, the completion of the Porta Nuova scheme in the newly defined CBD both offers an opportunity and poses an additional challenge to law firms. On one hand it provides Grade A space in a highly accessible location, on the other it is a not yet fully consolidated office location and as such may be a risky choice for the traditionally conservative law sector.

Milan



4.0% 4



Description of available incentives 6 to 9 months rent free



Top 3 challenges for law firms1. Uncertainty in the economic environment translating into uncertain business performance: is it the right time to grow / change?2. Uncertainty in the evolution of rental levels: is it the right moment to sign a new lease?3. Uncertainty in the potential of a new submarket location: is there potential for law firms outside the Historic Centre?

Top 3 opportunities for law firms1. Release of office space in the Historic Centre.2. Growth in supply in the CBD.3. Law firms negotiating position strengthened by investors’ appetite for law firms among their tenants.

White & Case Piazza Diaz, 1 (H1 2012) 1,070 sq m Relocation

Ashurst Piazza San Fedele, 2 2,300 sq m Relocation


2013 20152014 2016 2017

OUTLOOK



Locational preference: The majority of law firms in Warsaw are located in the City Centre. Large firms tend to occupy Class A skyscrapers and other modern office developments as these buildings have an element of prestige associated with them. Smaller firms, on the other hand, prefer conveniently located, refurbished tenement houses which provide cellular offices. Central locations in Warsaw are witnessing some downward pressure on rents which could prove beneficial for all firms operating in the CBD.

Warsaw’s legal market is expanding steadily and firms from this sector currently occupy approximately 2.0 to 3.0 percent of total modern office stock. Four of the 50 largest law firms in the market are estimated to have over 200 employees, and six have over 100 employees.

Large law firms are located mainly in the Warsaw CBD and prefer prestigious, modern office buildings like Rondo 1 or the Warsaw Financial Centre. It is worth noting that many law firms operating in Warsaw prefer to stay in their current premises rather than relocate to new buildings, proven by two major renewals concluded in the past 12 months. In addition, one large law firm will be relocating from an old, non-office use building to its new premises currently under construction.

The vacancy rate maintained its upward trend and reached 10.5 percent at the end of Q2 2013. Vacancy in the City Centre (CC Fringestge and CBD) remained stable over the quarter, at 9.9 percent, however upward pressure was felt in non-central locations, resulting in an average vacancy rate of 10.8 percent. Vacancy was highest in the south-west district (at 15.6 percent). The flight to quality, combined with attractive rental conditions for occupiers, will increase vacancy rates in second-hand buildings, which will exert downward pressure on rents. Prime headlines have been revised slightly downward over the quarter in the Central districts to €22.00 to €24.00 per square meter per month. The best non-central locations, such as prime buildings in Mokotów, are trading at €14.50 to €14.75 per square meter per month. Rental conditions are expected to remain in the favour of occupiers in the near term.

Warsaw



2-3% 4


Prime rent (sq m per annum) €264-288

Description of available incentives4 to 6 months rent free + fit-out contributions




Top 3 challenges for law firms1. Some A+ developments quote rents even higher than prime headline rents in City Centre.2. Potential for rent increases exist toward 2016, once the current oversupply in the market is absorbed.3. Leasing options in the core CBD may be limited for companies unwilling to relocate into buildings already occupied by other legal companies.

Top 3 opportunities for law firms1. Positive rental outlook for law firms in the short term, as downward pressure on rents continues.2. Number of immediate available leasing options for tenants.3. Large number of pipeline developments competing for pre-let agreements.

Dentons (Salans D. Oleszczuk Kancelaria Prawnicza) Rondo ONZ 1 2,800 sq m Renewal

Sołtysiński, Kawecki & Ślęzak Jasna 26 4,974 sq m Pre-let

CMS Cameron McKenna Dariusz Greszta Emilii Plater 53 5,000 sq m Renewal


OUTLOOK


Locational preference: Law firms are generally located in period buildings, in some of the most prestigious addresses in Paris. These are mostly on the right side of the river Seine, in the CBD. Despite the tough economic background, the CBD remained an attractive location, which has been confirmed by the 2013 office demand. Law firms present in the CBD were willing to reduce their requirement sizes in order to stay, whilst firms from other submarkets were looking for opportunities in the CBD, even if the move required compromise. This was the case for Fidal, who adopted an innovative front versus back office solution, renting a small premise in the CBD, together with a bigger one at La Défense, using the first to enhance its image among clients and prospects.

The legal market in Paris consists of a range of large ‘magic circle’ and U.S. players, as well as some weighty French practices, followed by a sizeable number of medium- and small-sized practices, providing more niche competencies. Given the persisting economic crisis, the current trend is toward market concentration: some practices disappearing or being absorbed, while many bigger ones are downsizing their headcount.

The consequences of these market trends on law firm real estate are significant. When they are not reducing headcount, law firms decrease the space allocated per person in Paris. A vast majority of them have therefore started to sublet or vacate some of their original space, by about 15.0 to 20.0 percent in some cases. Law firms in Paris are also very mindful of their workplace expenses, both for financial and image reasons, as clients put pressure on them to significantly reduce their fees. Preferences are also clearly toward renegotiating leases, in order to obtain immediate costs reductions. Finally, some law firms are looking for new real estate options - Fidal, who have adopted a front vs. back office solution, is one such example.

Paris

Percent of the market occupied by law firms


2% 21



Description of available incentives 25% of the annual headline rent

Parisian region vacancy rate 6.9%

CBD vacancy rate 5.2%


Top 3 challenges for law firms1. Financial constraints due to tougher operating conditions put pressure on the law firms to identify cost savings solutions in the very short term, reducing excess

space and speeding up workplace transformation.2. Defining the ‘right’ office size: law firms will have to combine higher flexibility with better control of their real estate costs.3. Shortage of high-quality supply in the traditionally-preferred submarkets worsened by the fact that lawyers are very reluctant to settle in buildings previously

occupied by competitors.Top 3 opportunities for law firms1. Competition for space is relatively low at present.2. Leases can be favourably renegotiated by large tenants, on the condition that they agree on an extension of additional years, as many leases were concluded at

inflated levels when the economic background was more favourable.3. Given the very scarce demand on the prime segment, incentives offered by landlords can be quite significant.

DS Avocats 6-8 rue Duret 75016 Paris 6,300 sq m

CMS Bureau Francis Lefebvre 2-8 rue Ancelle 92200 Neuilly-sur-Seine 16,500 sq m

Fidal 4-6 avenue d’Alsace 92400 Courbevoie 13 627 sqm (+3 000 sq m Avenue Kleber 75016 Paris)


2013 20152014 2016 2017

OUTLOOK



Locational preference: The majority of law firms in Warsaw are located in the City Centre. Large firms tend to occupy Class A skyscrapers and other modern office developments as these buildings have an element of prestige associated with them. Smaller firms, on the other hand, prefer conveniently located, refurbished tenement houses which provide cellular offices. Central locations in Warsaw are witnessing some downward pressure on rents which could prove beneficial for all firms operating in the CBD.

Warsaw’s legal market is expanding steadily and firms from this sector currently occupy approximately 2.0 to 3.0 percent of total modern office stock. Four of the 50 largest law firms in the market are estimated to have over 200 employees, and six have over 100 employees.

Large law firms are located mainly in the Warsaw CBD and prefer prestigious, modern office buildings like Rondo 1 or the Warsaw Financial Centre. It is worth noting that many law firms operating in Warsaw prefer to stay in their current premises rather than relocate to new buildings, proven by two major renewals concluded in the past 12 months. In addition, one large law firm will be relocating from an old, non-office use building to its new premises currently under construction.

The vacancy rate maintained its upward trend and reached 10.5 percent at the end of Q2 2013. Vacancy in the City Centre (CC Fringestge and CBD) remained stable over the quarter, at 9.9 percent, however upward pressure was felt in non-central locations, resulting in an average vacancy rate of 10.8 percent. Vacancy was highest in the south-west district (at 15.6 percent). The flight to quality, combined with attractive rental conditions for occupiers, will increase vacancy rates in second-hand buildings, which will exert downward pressure on rents. Prime headlines have been revised slightly downward over the quarter in the Central districts to €22.00 to €24.00 per square meter per month. The best non-central locations, such as prime buildings in Mokotów, are trading at €14.50 to €14.75 per square meter per month. Rental conditions are expected to remain in the favour of occupiers in the near term.

Warsaw



2-3% 4


Prime rent (sq m per annum) €264-288

Description of available incentives4 to 6 months rent free + fit-out contributions




Top 3 challenges for law firms1. Some A+ developments quote rents even higher than prime headline rents in City Centre.2. Potential for rent increases exist toward 2016, once the current oversupply in the market is absorbed.3. Leasing options in the core CBD may be limited for companies unwilling to relocate into buildings already occupied by other legal companies.

Top 3 opportunities for law firms1. Positive rental outlook for law firms in the short term, as downward pressure on rents continues.2. Number of immediate available leasing options for tenants.3. Large number of pipeline developments competing for pre-let agreements.

Dentons (Salans D. Oleszczuk Kancelaria Prawnicza) Rondo ONZ 1 2,800 sq m Renewal

Sołtysiński, Kawecki & Ślęzak Jasna 26 4,974 sq m Pre-let

CMS Cameron McKenna Dariusz Greszta Emilii Plater 53 5,000 sq m Renewal


OUTLOOK


Locational preference: Law firms are generally located in period buildings, in some of the most prestigious addresses in Paris. These are mostly on the right side of the river Seine, in the CBD. Despite the tough economic background, the CBD remained an attractive location, which has been confirmed by the 2013 office demand. Law firms present in the CBD were willing to reduce their requirement sizes in order to stay, whilst firms from other submarkets were looking for opportunities in the CBD, even if the move required compromise. This was the case for Fidal, who adopted an innovative front versus back office solution, renting a small premise in the CBD, together with a bigger one at La Défense, using the first to enhance its image among clients and prospects.

The legal market in Paris consists of a range of large ‘magic circle’ and U.S. players, as well as some weighty French practices, followed by a sizeable number of medium- and small-sized practices, providing more niche competencies. Given the persisting economic crisis, the current trend is toward market concentration: some practices disappearing or being absorbed, while many bigger ones are downsizing their headcount.

The consequences of these market trends on law firm real estate are significant. When they are not reducing headcount, law firms decrease the space allocated per person in Paris. A vast majority of them have therefore started to sublet or vacate some of their original space, by about 15.0 to 20.0 percent in some cases. Law firms in Paris are also very mindful of their workplace expenses, both for financial and image reasons, as clients put pressure on them to significantly reduce their fees. Preferences are also clearly toward renegotiating leases, in order to obtain immediate costs reductions. Finally, some law firms are looking for new real estate options - Fidal, who have adopted a front vs. back office solution, is one such example.

Paris

Percent of the market occupied by law firms


2% 21



Description of available incentives 25% of the annual headline rent

Parisian region vacancy rate 6.9%

CBD vacancy rate 5.2%


Top 3 challenges for law firms1. Financial constraints due to tougher operating conditions put pressure on the law firms to identify cost savings solutions in the very short term, reducing excess

space and speeding up workplace transformation.2. Defining the ‘right’ office size: law firms will have to combine higher flexibility with better control of their real estate costs.3. Shortage of high-quality supply in the traditionally-preferred submarkets worsened by the fact that lawyers are very reluctant to settle in buildings previously

occupied by competitors.Top 3 opportunities for law firms1. Competition for space is relatively low at present.2. Leases can be favourably renegotiated by large tenants, on the condition that they agree on an extension of additional years, as many leases were concluded at

inflated levels when the economic background was more favourable.3. Given the very scarce demand on the prime segment, incentives offered by landlords can be quite significant.

DS Avocats6-8 rue Duret 75016 Paris 6,300 sq m

CMS Bureau Francis Lefebvre 2-8 rue Ancelle 92200 Neuilly-sur-Seine16,500 sq m

Fidal 4-6 avenue d’Alsace 92400 Courbevoie 13 627 sqm (+3 000 sq m Avenue Kleber 75016 Paris)


2013 20152014 2016 2017

OUTLOOK


46 Law Firm Perspective • Global • 2013 Jones Lang LaSalle

Jones Lang LaSalle

Firms around the world remain deeply committed to embrace modern layouts and enhanced efficiency measures with two-thirds of the markets covered in this perspective reporting that firms are seeking to utilize their space differently. In many cases, by forging ahead with more aggressive space utilization measures, law firms are able to shrink their real estate occupancy by 10.0 to 25.0 percent across markets, helping to potentially cap cost structures in a still-challenging business climate....

Contacts

For more information contact:

Americas brokerage

Thomas E. Doughty International Director [email protected] +1 202 719 5652

Elizabeth K. Cooper International Director [email protected] +1 202 719 6195

Chris Murray Managing Director [email protected] +1 202 719 5010

Philip I. Leibow Managing Director [email protected] +1 202 719 5765

Gregory J. McCavera Managing Director [email protected] +1 202 719 5779

Bella Schiro Senior Vice President [email protected] +1 202 719 5834

Asia Pacific brokerage

Asia Pacific Jeremy Sheldon Director - Head of Markets [email protected] +852 2846 5288

Beijing Eric Hirsch Director [email protected] +86 10 5922 1263

Hong Kong Alex Barnes Director [email protected] +852 2846 5125

Melbourne Michael Greene Director [email protected] +61 7 3231 1355

Shanghai James Allan Director [email protected] +86 21 6133 5555

Singapore Jerome Wright Director [email protected] +68 216133 5425

Sydney Tony Wyllie Director [email protected] 61 2 9220 8729

Tokyo Neil Hitchen Director [email protected] +81 3 5501 9203

EMEA brokerage

Amsterdam Pieter van der Peet Tenant Representation [email protected] +31 20 540 7932

Brussels Eric Orban Director [email protected] +32 2 550 2529

Dubai & Abu Dhabi Dana Williamson Director [email protected] +971 (0) 4 426 6913

Germany Randall White Director [email protected] +49 69 2003 1216

London Richard Proctor Director [email protected] +44 (0)207 399 5252

Madrid Peter Kamp Tenant Representation [email protected] +34 91 789 11 00

Milan Yannis De Francesco Director [email protected] +39 02 85 86 86 90

Moscow Kate McMurtrie Director [email protected] +7 495 969 54 39

Paris Simon Williams Director [email protected] +33 (0)1 40 55 17 10

Warsaw Jakub Sylwestrowicz Tenant Representation [email protected] +48 22 318 00 48

Research

Tom Carroll Director – EMEA Research [email protected] +44 20 3147 1207

John Sikaitis Managing Director, Americas Office Research [email protected] +1 202 719 5839

www.jll.com

© 2013 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.

Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit www.jll.com.

Jones Lang LaSalle’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 350 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

About Jones Lang LaSalle

About Jones Lang LaSalle Research

About Jones Lang LaSalle Law Firm GroupOur Law Firm Group’s reach extends around the globe, with knowledge of law firm trends in every major market. With local presence in hundreds of markets around the world, you can feel confident in hiring a single firm for your real estate needs, while having the advantage of tailored local market expertise. Our experienced Law Firm Group can oversee your strategy, while giving you access to our integrated network of thought leaders, leading research analysts and local real estate experts. Moreover, Jones Lang LaSalle’s global platform provides you with comprehensive solutions and local expertise that matches your long-term objectives across the nation and around the world. At Jones Lang LaSalle, we take a strategic approach to understanding and solving your challenges and are ready to deliver valuable counsel at every step.

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